Tag Archives: Exchange subsidies

The Constitution Finally Takes Precedence over Obamacare

Late Thursday evening, the Administration announced that it was immediately ending cost-sharing reduction payments to health insurers offering plans in Obamacare Exchanges. And regardless of what the press or liberals might claim, the decision isn’t, or shouldn’t be, about “sabotage.” It isn’t, or shouldn’t be, about Obamacare “imploding.” It’s about one thing—and one thing only: The rule of law.

The text of Obamacare nowhere includes an appropriation for the cost-sharing reduction payments, which reimburse carriers for discounting deductibles and co-payments for low-income Exchange enrollees. The Obama Administration knew that—but went ahead and made the payments anyway. One slight problem: The Constitution clearly gives the “power of the purse” to Congress: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

Without an appropriation, the Trump Administration has no choice but to end the payments to insurers—just as the Trump Administration would have no choice but to make the payments to insurers if an appropriation existed. One can easily make the argument—as this observer has—that the Administration should have ended the payments months ago.

But in time the Trump Administration did conclude—correctly—that President Obama had no more authority to make Obamacare payments without an appropriation than President Trump has to make payments for a border wall without an appropriation. By complying with the law and the Constitution to end the payments, President Trump actually diminished his executive power and ability to act unilaterally—restoring a rightful balance of power between the branches. Democrats fearful of the implications of three more years of a Donald Trump in the White House have reason to thank him for so doing.

But they won’t. Instead the cries of “sabotage” will continue—disregarding the fact that President Obama, by valuing Obamacare more than the Constitution itself, sabotaged the rule of law. When Tom Price resigned as Secretary of Health and Human Services last month, Senate Finance Committee Ranking Member Ron Wyden (D-OR) said his replacement “needs to be focused on implementing the law as written.” By cutting off the cost-sharing payments, that’s exactly what the Trump Administration has done—implemented the law as it was written, rather than as Democrats wished they had written it.

As for insurers, they can’t say they weren’t warned. Here’s what yours truly wrote about cost-sharing reduction payments nearly a year and a half ago:

The next President could easily wade into the [cost-sharing reduction payments]. Say a Republican is elected and he opts to stop the Treasury making payments related to the subsidies absent an express appropriation from Congress. Such an action could take effect almost immediately…Come January 2017, the policy landscape for insurers could look far different [than under the Obama Administration.]

That’s exactly what happened. Insurers gambled that they—and Obamacare—were “too big to fail,” despite a court ruling last May striking down the subsidy payments as unconstitutional. Because the court stayed that ruling, insurers assumed the next President would blithely continue the unconstitutional payments during its appeal. They assumed wrong.

Congress, having sparked the lawsuit when the House of Representatives sued to protect its constitutional prerogatives, could of course use its “power of the purse” to reinstate the cost-sharing reduction subsidies—this time through an explicit appropriation, rather than executive fiat. But before even considering such an action, it should first thoroughly investigate, and develop policies to eradicate, the “too big to fail” mentality that led insurers—and state insurance commissioners—to assume that unconstitutional acts would continue in perpetuity. Even better, Congress could instead develop ways to dismantle the structure of regulations and mandates that insurers believe requires them to receive $135 billion in subsidy payments in the first place.

For the time being, individuals likely will not see any direct effects from the payments ceasing. Carriers cannot exit Exchanges mid-year, and contracts for the 2018 plan year are already signed. (A provision in carriers’ 2017 and 2018 contracts lets them exit Exchanges if enrollees do not receive cost-sharing reductions—not if the insurers themselves do not receive reimbursement for those cost-sharing reductions. This clause, awkwardly drafted by insurers’ counsel, may provide them with little legal recourse—and further highlights their questionable assumptions and behavior surrounding the subsidies.) So maybe—just maybe—Washington can spend some time focusing on the real issue behind the Administration’s action: Upholding the Constitution.

Updated Summary of Graham-Cassidy Health Care Legislation

A PDF version of the below can be found on the Texas Public Policy Foundation’s website

Summary of CBO Score

On Monday evening, the Congressional Budget Office (CBO) released a preliminary estimate of the Graham-Cassidy bill. CBO concluded that the bill would comply with reconciliation parameters—namely, that it would reduce the deficit by at least as much as the underlying reconciliation vehicle (the House-passed American Health Care Act), reduce the deficit by at least $1 billion in each of its two titles in its first ten years, and not increase the deficit overall in any of the four following decades.

Although it did not include any specific coverage or premium numbers, CBO did conclude that the bill would likely decrease coverage by millions compared to the current policy baseline. The report estimated that the bill’s block grant would spend about $230 billion less than current law—a 10 percent reduction overall (an average 30 percent reduction for Medicaid expansion states, but an average 30 percent increase for non-expansion states). Moreover, CBO believes at least $150 billion in block grant funding would not be spent by the end of the ten-year budget window.

CBO believes that “most states would eventually make changes in the regulations for their non-group market in order to stabilize it and would use some funds from the block grants to facilitate those changes.” Essentially, current insurance regulations mean that markets would become unstable without current law subsidies, such that states would use a combination of subsidies and changes in regulations to preserve market stability.

CBO believes that most Medicaid expansion states would attempt to use block grant funding to create Medicaid-like programs for their low-income residents. However, the analysis concludes that by 2026, those states’ block grants would roughly equal the projected cost of their current Medicaid expansion—forcing them to choose between “provid[ing] similar benefits to people in a [Medicaid] alternative program and extend[ing] support to others” further up the income scale. In those cases, CBO believes “most of those states would then choose to provide little support to people in the non-group market because doing so effectively would be the more difficult task.”

Overall, CBO believes that the bill would reduce insurance coverage, because of its repeal of the subsidies, Medicaid expansion, and the individual mandate. The budget office believes that states with high levels of coverage under Obamacare would not receive enough funds under the revised block grant to match their current coverage levels, while states with lower levels of coverage would spend the money slowly, in part because they lack the infrastructure (i.e., technology, etc.) to distribute subsidies easily. CBO also believes that employment-based coverage would increase under the bill, because some employers would respond to changes in the individual market by offering coverage to their workers.

With respect to the Medicaid reforms in the bill, CBO concludes that most “states would not have substantial additional flexibility” under the per capita caps. Some states with declining populations might choose the block grant option, but the grant “would not be attractive in most states experiencing population growth, as the fixed block grant would not be adjusted for such growth.” States could reduce their spending by reducing provider payment rates; optional benefit categories; limiting eligibility; improving care delivery; or some combination of the approaches.

For the individual market, CBO expresses skepticism about the timelines in the bill. Specifically, its analysis found that states’ initial options would “be limited,” because implementing new health programs by 2020 would be “difficult:”

To establish its own system of subsidies for coverage in the nongroup market related to people’s income, a state would have to enact legislation and create a new administrative infrastructure. A state would not be able to rely on any existing system for verifying eligibility or making payments. It would need to establish a new system for enrolling people in nongroup insurance, verify eligibility for tax credits or other subsidies, certify insurance as eligible for subsidies, and ultimately ensure that the payments were correct. Those steps would be challenging, particularly if the state chose to simultaneously change insurance market regulations.

While CBO believes that states that expanded Medicaid would be likely to create programs for populations currently eligible for subsidies (i.e., those households with incomes between one and four times poverty), it notes that such states “would be facing large reductions in funding compared with the amounts under current law and thus would have trouble paying for a new program or subsidies for those people.”

CBO believes that without subsidies, and with current insurance regulations in place, a “death spiral” would occur, whereby premiums would gradually increase and insurers would drop out of markets. (However, “if a state required individuals to have insurance, some healthier people would enroll, and premiums would be lower.”) To avoid this scenario, CBO believes that “most states would eventually modify various rules to help stabilize the non-group market,” thereby increasing coverage take-up when compared to not doing so. However, “coverage for people with pre-existing conditions would be much more expensive in some of those states than under current law.”

While widening age bands would “somewhat increase insurance coverage, on net,” CBO notes that “insurance covering certain services not included in the scope of benefits to become more expensive—in some cases, extremely expensive.” Moreover, some medically underwritten individuals (i.e., subject to premium changes based on health status) would become uninsured, while others would instead obtain employer coverage.

Finally, CBO estimated that the non-coverage provisions of the bill would increase the deficit by $22 billion over ten years. Specific estimates for those provisions are integrated into the summary below.

Summary of Changes Made

On Sunday evening, the bill’s sponsors released revised text of their bill. Compared to the original draft, the revised bill:

  • Strikes language repealing sections of Obamacare related to eligibility determinations (likely to comply with the Senate’s “Byrd rule” regarding budget reconciliation);
  • Changes the short-term “stability fund” to set aside 5 percent of funds for “low-density states,” which some conservatives may view as a carve-out for certain states similar to that included in July’s Better Care Reconciliation Act;
  • Re-writes waiver authority, but maintains (and arguably strengthens) language requiring states to “maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” which some conservatives may view as imposing limiting conditions on states that wish to reform their insurance markets;
  • Requires states to certify that they will “ensure compliance” with sections of the Public Health Service Act relating to: 1) the under-26 mandate; 2) hospital stays following births; 3) mental health parity; 4) re-constructive surgery following mastectomies; and 5) genetic non-discrimination;
  • Strikes authority given to the Health and Human Services Secretary in several sections, and replaces it with authority given to the Centers for Medicare and Medicaid Services (CMS) Administrator;
  • Includes a new requirement that at least half of funds provided under the Obamacare replacement block grant must be used “to provide assistance” to households with family income between 50 and 300 percent of the poverty level;
  • Requires CMS Administrator to adjust block grant spending upward for a “low-density state” with per capita health care spending 20 percent higher than the national average, increasing allocation levels to match the higher health costs—a provision some conservatives may consider an earmark for specific states;
  • Imposes new requirement on CMS Administrator to notify states of their 2020 block grant allocations by November 1, 2019—a timeline that some may argue will give states far too little time to prepare and plan for major changes to their health systems;
  • Slows the transition to the new Obamacare replacement block grant formula outlined in the law, which now would not fully take effect until after 2026—even though the bill does not appropriate block grant funds for years after 2026;
  • Gives the Administrator the power not to make an annual adjustment for risk in the block grant;
  • Strikes the block grant’s annual adjustment factor for coverage value;
  • Delays the block grant’s state population adjustment factor from 2020 until 2022—but retains language giving the CMS Administrator to re-write the entire funding allocation based on this factor, which some conservatives may view as an unprecedented power grab by federal bureaucrats;
  • Re-writes rules re-allocating unspent block grant allocation funds;
  • Prohibits states from receiving more than a 25 percent year-on-year increase in their block grant allocations;
  • Makes other technical changes to the block grant formula;
  • Changes the formula for the $11 billion contingency fund provided to low-density and non-expansion states—25 percent ($2.75 billion) for low-density states, 50 percent ($5.5 billion) for non-Medicaid expansion states, and 25 percent ($2.75 billion) for Medicaid expansion states;
  • Includes a $750 million fund for “late-expanding” Medicaid states (those that did not expand Medicaid under Obamacare prior to December 31, 2016), which some conservatives may consider an earmark, and one that encourages states to embrace Obamacare’s Medicaid expansion to the able-bodied;
  • Includes $500 million to allow pass-through funding under Section 1332 Obamacare waivers to continue for years 2019 through 2023 under the Obamacare replacement block grant;
  • Strikes language allowing for direct primary care to be purchased through Health Savings Accounts, and as a medical expense under the Internal Revenue Code;
  • Strikes language reducing American territories’ Medicaid match from 55 percent to 50 percent;
  • Restores language originally in BCRA allowing for “late-expanding Medicaid states” to select a shorter period for their per capita caps—a provision that some conservatives may view as an undue incentive for certain states that expanded Medicaid under Obamacare;
  • Restores language originally in BCRA regarding reporting of data related to Medicaid per capita caps;
  • Strikes language delaying Medicaid per capita caps for certain “low-density states;”
  • Includes new language perpetually increasing Medicaid match rates on the two highest states with separate poverty guidelines issued for them in 2017—a provision that by definition includes only Alaska and Hawaii, which some conservatives may view as an inappropriate earmark;
  • Strikes language allowing all individuals to purchase Obamacare catastrophic coverage beginning in 2019;
  • Strikes language clarifying enforcement provisions, particularly regarding abortion;
  • Allows states to waive certain provisions related to insurance regulations, including 1) essential health benefits; 2) cost-sharing requirements; 3) actuarial value; 4) community rating; 5) preventive health services; and 6) single risk pool;
  • Requires states to describe its new insurance rules to the federal government, “except that in no case may an issuer vary premium rates on the basis of sex or on the basis of genetic information,” a provision that some conservatives may view as less likely to subject the rules to legal challenges than the prior language; and
  • Retains language requiring each waiver participant to receive “a direct benefit” from federal funds, language that some conservatives may view as logistically problematic.

Full Summary of Bill (as Revised)

Last week, Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) introduced a new health care bill. The legislation contains some components of the earlier Better Care Reconciliation Act (BCRA), considered by the Senate in July, with some key differences on funding streams. A full summary of the bill follows below, along with possible conservative concerns where applicable. Cost estimates are included below come from prior Congressional Budget Office (CBO) scores of similar or identical provisions in BCRA.

Of particular note: It is unclear whether this legislative language has been fully vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it would do should the Graham-Cassidy measure receive floor consideration—the Parliamentarian advises 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).

As the bill was released prior to issuance of a CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule.” (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017) must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $11.7 billion over ten years—$8.5 billion in spending, and $3.2 billion in revenue.

Repeals the subsidy regime entirely after December 31, 2019.

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. Saves $6 billion over ten years.

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Fund:          Creates two state-based funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $10 billion each for 2018 and 2019, and $15 billion for 2020, ($35 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds. Some conservatives may be concerned this provision provides excessive authority to unelected bureaucrats to distribute $35 billion in federal funds as they see fit.

Includes new language setting aside 5 percent of stability fund dollars for “low-density states”—a provision which some conservatives may oppose as an earmark for Alaska and other similar states.

Market-Based Health Care Grant Program:       Creates a longer-term stability fund for states with a total of $1.176 trillion in federal funding from 2020 through 2026—$146 billion in 2020 and 2021, $157 billion in 2022, $168 billion in 2023, $179 billion in 2024, and $190 billion in 2025 and 2026. Eliminates BCRA provisions requiring a state match. States could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states. However, all funds would have to be spent by December 31, 2026.

Expands BCRA criteria for appropriate use of funds by states, to include assistance for purchasing individual insurance, and “provid[ing] health insurance coverage for individuals who are eligible for” Medicaid, as well as the prior eligible uses under BCRA: to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing.

However, states may spend no more than 15 percent of their resources on the Medicaid population (or up to 20 percent if the state applies for a waiver, and the Department of Health and Human Services concludes that the state is using its funds “to supplement, and not supplant,” the state Medicaid match). In addition, states must spend at least half of their funds on “provid[ing] assistance” to families with incomes between 50 and 300 percent of the federal poverty level. Some conservatives may believe these restrictions belie the bill’s purported goal of giving states freedom and flexibility to spend the funds as they see fit.

Some conservatives may be concerned that, by doling out nearly $1.2 trillion in spending, the bill does not repeal Obamacare, so much as it redistributes Obamacare funds from “blue states” to “red states,” per the formulae described below. Some conservatives may also be concerned that the bill creates a funding cliff—with spending dropping from $190 billion in 2026 to $0 in 2027—that will leave an impetus for future Congresses to spend massive new amounts of money in the future.

Grant Formula:         Sets a complex formula for determining state grant allocations, tied to the overall funding a state received for Medicaid expansion, the basic health program under Obamacare, and premium and cost-sharing subsidies provided to individuals in insurance Exchanges. Permits states to select any four consecutive fiscal quarters between September 30, 2013 and January 1, 2018 to establish the base period. (The bill sponsors have additional information regarding the formula calculations here.)

Intends to equalize grant amounts, with a phase-in of the new methodology for years 2021 through 2026. Ideally, the bill would set funding to a state’s number of low-income individuals when compared to the number of low-income individuals nationwide. Defines the term “low-income individuals” to include those with incomes between 50 and 138 percent of the federal poverty level (45-133% FPL, plus a 5 percent income disregard created by Obamacare). In 2017, those numbers total $12,300-$33,948 for a family of four.

Adjusts state allocations (as determined above) according to additional factors:

  1. Risk Adjustment:      The bill would phase in risk adjustment over four years (between 2023 and 2026), and limit the risk adjustment modification to no more than 10 percent of the overall allotment. Risk adjustment would be based on clinical risk factors for low-income individuals (as defined above). The Centers for Medicare and Medicaid Services (CMS) Administrator could cancel the risk adjustment factor in the absence of sufficient data.
  2. Population Adjustment:              Permits (but does not require) the Administrator to adjust allocations for years after 2022 according to a population adjustment factor. Requires CMS to “develop a state specific population adjustment factor that accounts for legitimate factors that impact the health care expenditures in a state”—such as demographics, wage rates, income levels, etc.—but as noted above, does not require CMS to adjust allocations based upon those factors.

Notwithstanding the above, states could not receive a year-on-year increase in funding of more than 25 percent.

Requires the Administrator to adjust block grant spending upward for a “low-density state” with per capita health care spending 20 percent higher than the national average, increasing allocation levels to match the higher health costs—a provision some conservatives may consider an inappropriate earmark for Alaska. Imposes new requirement on the Administrator to notify states of their 2020 block grant allocations by November 1, 2019—a timeline that some may argue will give states far too little time to prepare and plan for major changes to their health systems.

Some conservatives may be concerned that, despite the admirable intent to equalize funding between high-spending and low-spending states, the bill gives excessive discretion to unelected bureaucrats in Washington to determine the funding formulae. Some conservatives may instead support repealing all of Obamacare, and allowing states to decide for themselves what they wish to put in its place, rather than doling out federal funds from Washington. Finally, some may question why the bill’s formula criteria focus so heavily on individuals with incomes between 50-138 percent FPL, to the potential exclusion of individuals and households with slightly higher or lower incomes.

Provides $750 million for “late-expanding” Medicaid states—those that did not expand Medicaid under Obamacare prior to December 31, 2015—which some conservatives may consider an earmark, one that encourages states that have embraced Obamacare’s Medicaid expansion to the able-bodied. Also includes $500 million to allow pass-through funding under Section 1332 Obamacare waivers to continue for years 2019 through 2023.

Grant Application:  Requires states applying for grant funds to outline the intended uses of same. Specifically, the state must describe how it “shall maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” along with “such other information as necessary for the Administrator to carry out this subsection”—language that could be used by a future Democratic Administration, or federal courts, to undermine the waiver program’s intent.

Explicitly requires states to “ensure compliance” with several federal insurance mandates:

  1. Coverage of “dependents” under age 26;
  2. Hospital stays following deliveries;
  3. Mental health parity;
  4. Reconstructive surgery following mastectomies; and
  5. Genetic non-discrimination.

Some conservatives may note that these retained federal mandates belie the notion of state flexibility promised by the legislation.

Contingency Fund:               Appropriates a total of $11 billion—$6 billion for calendar year 2020, and $5 billion for calendar 2021—for a contingency fund for certain states. Half of the funding ($5.5 billion total) would go towards states that had not expanded Medicaid as of September 1, 2017, with the remaining one-quarter ($2.75 billion) going towards “low-density states”—those with a population density of fewer than 15 individuals per square mile—and another one-quarter ($2.75 billion) going towards states that did expand Medicaid.

Implementation Fund:        Provides $2 billion to implement programs under the bill. Costs $2 billion over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion; and
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion.

Some conservatives may be concerned that the bill barely attempts to reduce revenues, repealing only the smallest taxes in Obamacare—and the ones that corporate lobbyists care most about (e.g., medical device tax and retiree prescription drug coverage provision).

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. Lowers revenues by a total of $19.2 billion over ten years.

Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies).

Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts. Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills. No separate cost estimate provided for the revenue reduction associated with allowing HSA dollars to be used to pay for insurance premiums.

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). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. Saves $146 million over ten years.

Medicaid Expansion:           Phases out Obamacare’s Medicaid expansion to the able-bodied, effective January 1, 2020. After such date, only members of Indian tribes who reside in states that had expanded Medicaid—and who were eligible on December 31, 2019—would qualify for Obamacare’s Medicaid expansion. Indians could remain on the Medicaid expansion, but only if they do not have a break in eligibility (i.e., the program would be frozen to new enrollees on January 1, 2020).

Repeals the enhanced federal match (currently 95 percent, declining slightly to 90 percent) associated with Medicaid expansion, effective in 2020. Also repeals provisions regarding the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19.3 billion over ten years.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid from three months to two months. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility. Saves $800 million over ten years.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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 five 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. Adds to existing exemptions (drafted in BCRA) provisions exempting those in inpatient or intensive outpatient substance abuse treatment and full-time students from Medicaid work requirements. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.6 percent in fiscal year 2021, 5.2 percent in fiscal year 2022, 4.8 percent in fiscal year 2023, 4.4 percent in fiscal year 2024, and 4 percent in fiscal year 2025 and future fiscal years—a change from BCRA, which reduced provider taxes to 5 percent in 2025 (0.2 percent reduction per year, as opposed to 0.4 percent under the Graham-Cassidy bill). Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $13 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 2020. 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).

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Late-expanding Medicaid states could choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied.

Creates four 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; and 4) 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. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion.

For years before fiscal year 2025, indexes the caps to medical inflation for children and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation for children and non-expansion enrollees, with the caps rising by medical inflation for aged, blind, and disabled beneficiaries—a change from BCRA, which set the caps at overall inflation for all enrollees beginning in 2025.

Eliminates provisions in the House bill regarding “required expenditures by certain political subdivisions,” which some had derided as a parochial New York-related provision.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 3% (a change from BCRA, which set a 2% maximum increase) for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% (unchanged from BCRA) for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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.

Home and Community-Based Services:             Creates a four-year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid, with such payment adjustments eligible for a 100 percent federal match. The 15 states with the lowest population density would be given priority for funds.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

In a change from BCRA, the bill removes language permitting states to roll over block grant payments from year to year—a move that some conservatives may view as antithetical to the flexibility intended by a block grant, and biasing states away from this model. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations. Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018; however, in a change from BCRA, allows for higher federal match rates for certain services and individuals to continue if they were in effect prior to September 30, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medicaid and Indian Health Service:             Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services. Current law provides for a 100 percent match only for services provided at an Indian Health Service center. Costs $3.5 billion over ten years.

Disproportionate Share Hospital (DSH) Payments:     Adjusts reductions in DSH payments to reflect shortfalls in funding for the state grant program described above. For fiscal years 2021 through 2025, states receiving grant allocations that do not keep up with medical inflation will have their DSH reductions reduced or eliminated; in fiscal year 2026, states with grant shortfalls will have their DSH payments increased. Costs $17.9 billion over ten years.

High-Poverty States:            Provides for a permanent increase in the federal Medicaid match for two states, based on poverty guidelines established for 2017. Specifically, provides for a 25 percent increase to the state with the “highest separate poverty guideline for 2017,” and a 15 percent increase to the state with the “second highest separate poverty guideline for 2017”—provisions that by definition would apply only to Alaska and Hawaii, respectively. Some conservatives may be concerned first that these provisions represent inappropriate earmarks, and further that they would change federal spending in perpetuity based on poverty determinations made for a single year. Costs $7.2 billion over ten years.

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances, beginning in Fiscal Year 2019. Saves $7.9 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” above). Spends $422 million over ten years.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019, and does not appropriate funds for cost-sharing subsidy claims for plan years through 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.

Grant Conditions:    Sets additional conditions for the grant program established in Title I of the bill. States may submit applications waiving certain provisions currently in federal statute:

  1. Essential health benefits;
  2. Cost-sharing requirements;
  3. Actuarial value requirements, including plan metal tiers (e.g., bronze, silver, gold, and platinum);
  4. Community rating—although states may not be able to vary premiums based on health status, due to contradictory language in this section;
  5. Preventive health services; and
  6. Single risk pool.

Requires states to submit their revised rules to the federal government, “except that in no case may an issuer vary premium rates on the basis of sex or on the basis of genetic information.” Some conservatives may view this language as less likely to spark new legal challenges than the prior wording, which prohibited insurance changes based on “membership in a protected class.” However, some conservatives may also find that the mutually contradictory provisions over whether and how states can vary insurance rates may spark other legal challenges.

The waivers only apply to an insurer receiving funding under the state program, and “to an individual who is receiving a direct benefit” from the grant—which does not include reinsurance. In other words, each individual must receive some direct subsidy, rather than just general benefits derived from the broader insurance pool. Some conservatives may be concerned that, by tying waiver of regulations so closely to receipt of federal grant funds, this provision would essentially provide limited regulatory relief. Furthermore, such limited relief would require states to accept federal funding largely adjudicated and doled out by unelected bureaucrats.

Some conservatives may be concerned that, while well-intentioned, these provisions do not represent a true attempt at federalism—one which would repeal all of Obamacare’s regulations and devolve health insurance oversight back to the states. It remains unclear whether any states would actually waive Obamacare regulations under the bill; if a state chooses not to do so, all of the law’s costly mandates will remain in place there, leaving Obamacare as the default option.

 

Some conservatives may view provisions requiring anyone to whom a waiver applies to receive federal grant funding as the epitome of moral hazard—ensuring that individuals who go through health underwriting will receive federal subsidies, no matter their level of wealth or personal circumstances. By requiring states to subsidize bad actors—for instance, an individual making $250,000 who knowingly went without health coverage for years—with federal taxpayer dollars, the bill could actually raise health insurance premiums, not lower them. Moreover, some conservatives may be concerned that—because the grant program funding ends in 2027, and because all individuals subject to waivers must receive grant funding—the waiver program will effectively end in 2027, absent a new infusion of taxpayer dollars.

Summary of Graham-Cassidy Legislation

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

Last week, Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) introduced a new health care bill. The legislation contains some components of the earlier Better Care Reconciliation Act (BCRA), considered by the Senate in July, with some key differences on funding streams. A full summary of the bill follows below, along with possible conservative concerns where applicable. Cost estimates are included below come from prior Congressional Budget Office (CBO) scores of similar or identical provisions in BCRA.

Of particular note: It is unclear whether this legislative language has been fully vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it would do should the Graham-Cassidy measure receive floor consideration—the Parliamentarian advises 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).

As the bill was released prior to issuance of a CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule.” (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017) must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place.

Repeals the subsidy regime entirely after December 31, 2019.

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. Saves $6 billion over ten years.

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Fund:          Creates two state-based funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $10 billion each for 2018 and 2019, and $15 billion for 2020, ($35 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds. Some conservatives may be concerned this provision provides excessive authority to unelected bureaucrats to distribute $35 billion in federal funds as they see fit.

Eliminates language in BCRA requiring CMS to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives opposed as an earmark for Alaska.

Market-Based Health Care Grant Program:       Creates a longer-term stability fund for states with a total of $1.176 trillion in federal funding from 2020 through 2026—$146 billion in 2020 and 2021, $157 billion in 2022, $168 billion in 2023, $179 billion in 2024, and $190 billion in 2025 and 2026. Eliminates BCRA provisions requiring a state match. States could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states. However, all funds would have to be spent by December 31, 2026.

Expands BCRA criteria for appropriate use of funds by states, to include assistance for purchasing individual insurance, and “provid[ing] health insurance coverage for individuals who are eligible for” Medicaid, as well as the prior eligible uses under BCRA: to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, states may spend no more than 15 percent of their resources on the Medicaid population (or up to 20 percent if the state applies for a waiver, and the Department of Health and Human Services concludes that the state is using its funds “to supplement, and not supplant,” the state Medicaid match)—a restriction that some may believe belies the bill’s purported goal of giving states freedom and flexibility to spend the funds as they see fit.

Some conservatives may be concerned that, by doling out nearly $1.2 trillion in spending, the bill does not repeal Obamacare, so much as it redistributes Obamacare funds from “blue states” to “red states,” per the formulae described below. Some conservatives may also be concerned that the bill creates a funding cliff—with spending dropping from $190 billion in 2026 to $0 in 2027—that will leave an impetus for future Congresses to spend massive new amounts of money in the future.

Grant Formula:         Sets a complex formula for determining state grant allocations, tied to the overall funding a state received for Medicaid expansion, the basic health program under Obamacare, and premium and cost-sharing subsidies provided to individuals in insurance Exchanges. Permits states to select any four consecutive fiscal quarters between September 30, 2013 and January 1, 2018 to establish the base period. (The bill sponsors have additional information regarding the formula calculations here.)

Intends to equalize grant amounts by 2026, with a phase-in of the new methodology for years 2021 and 2025. Specifically, the bill would by 2026 set funding to a state’s number of low-income individuals when compared to the number of low-income individuals nationwide. Defines the term “low-income individuals” to include those with incomes between 50 and 138 percent of the federal poverty level (45-133% FPL, plus a 5 percent income disregard created by Obamacare). In 2017, those numbers total $12,300-$33,948 for a family of four.

Adjusts state allocations (as determined above) according to three additional factors:

  1. Risk Adjustment:      The bill would phase in risk adjustment over four years (between 2021 and 2024), and limit the risk adjustment modification to no more than 10 percent of the overall allotment. Risk adjustment would be based on clinical risk factors for low-income individuals (as defined above).
  2. Coverage Value:        The coverage value adjustment would phase in over four years (between 2024 and 2027), based on whether the average actuarial value (percentage of expected health expenses paid) of coverage for low-income individuals (as defined above) in a given state exceeded the “lowest possible actuarial value of health benefits” satisfying State Children’s Health Insurance Program benefit requirements.
  3. Population Adjustment:              Permits (but does not require) the Secretary of Health and Human Services (HHS) to adjust allocations according to a population adjustment factor. Requires HHS to “develop a state specific population adjustment factor that accounts for legitimate factors that impact the health care expenditures in a state”—such as demographics, wage rates, income levels, etc.—but as noted above, does not require HHS to adjust allocations based upon those factors.

Some conservatives may be concerned that, despite the admirable intent to equalize funding between high-spending and low-spending states, the bill gives excessive discretion to unelected bureaucrats in Washington to determine the funding formulae. Some conservatives may instead support repealing all of Obamacare, and allowing states to decide for themselves what they wish to put in its place, rather than doling out federal funds from Washington. Finally, some may question why the bill’s formula criteria focus so heavily on individuals with incomes between 50-138 percent FPL, to the potential exclusion of individuals and households with slightly higher or lower incomes.

Waivers:         In conjunction with the health care grant program above, allows (but does not require) states to waive certain regulatory requirements. Specifically, states could waive any provision that:

  1. Restricts criteria for insurers to vary premiums on the individual and small group markets, “except that a health insurance issuer may not vary premium rates based on an individual’s sex or membership in a protected class under the Constitution of the United States;”
  2. Prevents premium contributions from varying “on the basis of any health status-related factor” in the individual and small group markets;
  3. Requires coverage of certain benefits in the individual and small group markets; and
  4. Requires insurers in the individual and small group markets to offer rebates to enrollees if their spending fails to meet certain limits (i.e., a medical loss ratio requirement).

To receive the waiver, the state must describe how it “intends to maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” along with “such other information as necessary for the Administrator to carry out this subsection”—language that could be used by a future Democratic Administration to undermine the waiver program’s intent. States can only waive federal statutory requirements enacted after January 1, 2009—i.e., under the Obama Administration.

Moreover, any provision waived “shall only be waived with respect to health insurance coverage” provided by an insurer receiving funding under the state program—and “to an individual who is receiving a direct benefit (including reduced premium costs or reduced out-of-pocket costs) under a state program that is funded by a grant under this subsection.” Some conservatives may be concerned that, by tying waiver of regulations so closely to receipt of federal grant funds, this provision would essentially provide limited regulatory relief. Furthermore, such limited relief would require states to accept federal funding largely adjudicated and doled out by unelected bureaucrats.

Some conservatives may be concerned that, while well-intentioned, these provisions do not represent a true attempt at federalism—one which would repeal all of Obamacare’s regulations and devolve health insurance oversight back to the states. It remains unclear whether any states would actually waive Obamacare regulations under the bill; if a state chooses not to do so, all of the law’s costly mandates will remain in place there, leaving Obamacare as the default option. Moreover, the language requiring states “to maintain adequate and affordable health insurance coverage for individuals with pre-existing conditions” could lead to a private right of action against states utilizing the waivers—and judicial rulings that either undermine, or eliminate, the regulatory relief the waivers intend to provide.

Some conservatives may view provisions requiring anyone to whom a waiver applies to receive federal grant funding as the epitome of moral hazard—ensuring that individuals who go through health underwriting will receive federal subsidies, no matter their level of wealth or personal circumstances. By requiring states to subsidize bad actors—for instance, an individual making $250,000 who knowingly went without health coverage for years—with federal taxpayer dollars, the bill could actually raise health insurance premiums, not lower them.

Some may note that the bill could allow a future Democratic Administration—or, through its reference to “membership in a protected class under the Constitution,” activist judges—to inhibit future waiver applications, and/or impose undue and counter-productive restrictions on the supposed state “flexibility” in the bill. Finally, some conservatives may be concerned that—because the grant program funding ends in 2027, and because all individuals subject to waivers must receive grant funding—the waiver program will effectively end in 2027, absent a new infusion of taxpayer dollars.

Contingency Fund:               Appropriates a total of $11 billion—$6 billion for calendar year 2020, and $5 billion for calendar 2021—for a contingency fund for certain states. Three-quarters of the funding ($8.25 billion total) would go towards states that had not expanded Medicaid as of September 1, 2017, with the remaining one-quarter ($2.75 billion) going towards “low-density states”—those with a population density of fewer than 15 individuals per square mile.

Implementation Fund:        Provides $500 million to implement programs under the bill. Costs $500 million over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion; and
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion.

Some conservatives may be concerned that the bill barely attempts to reduce revenues, repealing only the smallest taxes in Obamacare—and the ones that corporate lobbyists care most about (e.g., medical device tax and retiree prescription drug coverage provision).

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. Lowers revenues by a total of $19.2 billion over ten years.

Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies).

Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts. Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills. No separate cost estimate provided for the revenue reduction associated with allowing HSA dollars to be used to pay for insurance premiums.

In an addition from BCRA, permits periodic fees for direct primary care to physicians to be 1) reimbursed from a Health Savings Account without being considered “insurance” and 2) considered a form of “medical care” under the Internal Revenue Code.

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). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. Saves $146 million over ten years.

Medicaid Expansion:           Phases out Obamacare’s Medicaid expansion to the able-bodied, effective January 1, 2020. After such date, only members of Indian tribes who reside in states that had expanded Medicaid—and who were eligible on December 31, 2019—would qualify for Obamacare’s Medicaid expansion. Indians could remain on the Medicaid expansion, but only if they do not have a break in eligibility (i.e., the program would be frozen to new enrollees on January 1, 2020).

Repeals the enhanced federal match (currently 95 percent, declining slightly to 90 percent) associated with Medicaid expansion, effective in 2020. Also reduces the federal Medicaid match for Puerto Rico and U.S. territories from 55 percent to 50 percent. (The federal Medicaid match for the District of Columbia would remain at 70 percent.)

The bill repeals provisions regarding the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid from three months to two months. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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 five 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. Adds to existing exemptions (drafted in BCRA) provisions exempting those in inpatient or intensive outpatient substance abuse treatment and full-time students from Medicaid work requirements. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.6 percent in fiscal year 2021, 5.2 percent in fiscal year 2022, 4.8 percent in fiscal year 2023, 4.4 percent in fiscal year 2024, and 4 percent in fiscal year 2025 and future fiscal years—a change from BCRA, which reduced provider taxes to 5 percent in 2025 (0.2 percent reduction per year, as opposed to 0.4 percent under the Graham-Cassidy bill). Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. 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).

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Removes provisions in BCRA allowing late-expanding Medicaid states to choose a shorter period as their “base period” for determining per capita caps, which may have improperly incentivized states that decided to expand Medicaid to the able-bodied.

Creates four 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; and 4) 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. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion.

For years before fiscal year 2025, indexes the caps to medical inflation for children and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation for children and non-expansion enrollees, with the caps rising by medical inflation for aged, blind, and disabled beneficiaries—a change from BCRA, which set the caps at overall inflation for all enrollees beginning in 2025.

Eliminates provisions in the House bill regarding “required expenditures by certain political subdivisions,” which some had derided as a parochial New York-related provision.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 3% (a change from BCRA, which set a 2% maximum increase) for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% (unchanged from BCRA) for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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.

Exempts low-density states (those with a population density of fewer than 15 individuals per square mile) from the caps, if that state’s grant program allocation (as described above) fails to increase with medical inflation, or if the Secretary determines the allotment “is insufficient…to provide comprehensive and adequate assistance to individuals in the state” under the grant program described above. Some conservatives may question the need for this carve-out for low density states—which the Secretary of HHS can apparently use at will—and why a small allocation for a program designed to “replace” Obamacare should have an impact on whether or not states reform their Medicaid programs.

Home and Community-Based Services:             Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid, with such payment adjustments eligible for a 100 percent federal match. The 15 states with the lowest population density would be given priority for funds.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

In a change from BCRA, the bill removes language permitting states to roll over block grant payments from year to year—a move that some conservatives may view as antithetical to the flexibility intended by a block grant, and biasing states away from this model. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations. Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018; however, in a change from BCRA, allows for higher federal match rates for certain services and individuals to continue if they were in effect prior to September 30, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medicaid and Indian Health Service:             Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services. Current law provides for a 100 percent match only for services provided at an Indian Health Service center. Costs $3.5 billion over ten years.

Disproportionate Share Hospital (DSH) Payments:     Adjusts reductions in DSH payments to reflect shortfalls in funding for the state grant program described above. For fiscal years 2021 through 2025, states receiving grant allocations that do not keep up with medical inflation will have their DSH reductions reduced or eliminated; in fiscal year 2026, states with grant shortfalls will have their DSH payments increased.

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances, beginning in Fiscal Year 2019. Saves $7.9 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” above). Spends $422 million over ten years.

Catastrophic Coverage:      Allows all individuals to buy Obamacare catastrophic plans, currently only available to those under 30, beginning on January 1, 2019.

Enforcement:            Clarifies existing law to specify that states may require that plans comply with relevant laws, including Section 1303 of Obamacare, which permits states to prohibit coverage of abortion in qualified health plans. While supporting this provision’s intent, some conservatives may be concerned that this provision may ultimately not comply with the Senate’s Byrd rule regarding the inclusion of non-fiscal matters on a budget reconciliation bill.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019, and does not appropriate funds for cost-sharing subsidy claims for plan years through 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.

UPDATED Summary of Senate Health Care Legislation

UPDATE: On July 20, the Congressional Budget Office (CBO) released its estimate of the revised legislation, EXCEPT for the “consumer freedom” provisions included in Title III of the revised draft. Important nuggets from the CBO score:

  • The bill overall would save $420 billion—an increase of $99 billion from the prior draft—largely due to the elimination of the repeal of two Obamacare “high-income” taxes (retains $231 billion in revenue). That higher revenue is offset in part by $39 billion more spending on substance abuse grants, $51 billion in additional Stability Fund spending (with the additional $19 billion authorized being spent after 2026), an $8 billion home and community-based services demonstration in Medicaid, and $5 billion in changes to Medicaid block grants and per capita caps for states with designated health emergencies.
  • The bill would reduce spending on traditional Medicaid by much less than spending on Medicaid expansion to the able-bodied, as outlined in a new chart (Table 3) not previously included in any prior CBO estimates. Over ten years (2017-2026), the bill would reduce spending on traditional Medicaid compared to current law by $164 billion, or about 4%. The bill would reduce spending on Medicaid expansion by $575 billion, or about 59%. In 2026, the final year of the budget window, the bill would reduce spending on traditional populations by $43 billion, or 9%, while reducing spending on expansion populations by $117 billion, or 87%.
  • Coverage estimates are largely unchanged—a reduction of 15 million insured in 2018, 19 million in 2020, and 22 million in 2026. These numbers include 1) several million people who would not enroll in Medicaid due to the repeal of the individual mandate and 2) several million people not covered under Medicaid now, but whom CBO estimates would be covered in the future, because CBO believes more states will choose to expand Medicaid in future years under current law.
  • Premium estimates are slightly changed later in the decade—a 20 percent increase compared to current law in 2018, a 10 percent increase in 2019, and a 30 percent decrease in 2020 (all unchanged), but a 25 percent decrease (up from 20 percent in the prior draft) compared to current law by 2026, due to additional federal taxpayer dollars being provided to the Stability Fund.
  • Under the bill, CBO estimates that a person with income at 175 percent of the poverty level ($21,105 for an individual in 2017) would pay less for insurance ($1,450, compared to $1,700 under Obamacare), but more in cost-sharing, “contribut[ing] significantly to a decrease in the number of lower-income people” with individual market coverage.
  • While the bill would lower the maximum income at which people qualify for subsidies from 400 to 350 percent of poverty, CBO believes that “for many single policyholders with income at either 375 percent or 450 percent of the [federal poverty level], net premiums would be somewhat lower under the legislation…in part because of the tax savings resulting from the use of health savings accounts.” However, CBO did not provide a separate estimate on the tax savings associated with the new provision to allow individuals to use HSA funds to pay for high-deductible health plan premiums.
  • CBO believes that the bill would create cross-pressuring forces between deductibles and actuarial value. While the bill links subsidies to a plan with an actuarial value (estimated percentage of average health expenses paid) of 58 percent (down from 70 percent under Obamacare), CBO notes that for the essential health benefits included in Obamacare, “all plans must pay for most of the cost of high-cost services….Hence, to design a plan with an actuarial value of 58 percent and pay for required high-cost services, insurers must set high deductibles.”
  • CBO believes that under the bill, deductibles for single coverage would total $13,000 in 2026—higher than the projected limit on out-of-pocket costs under Obamacare ($10,900) in that year. Therefore, “CBO and [the Joint Committee on Taxation] estimate that a plan with a deductible equal to the limit on out-of-pocket spending in 2026 would have an actuarial value of 62 percent. A percent enrolled in such a plan would pay for all health care costs (except for preventive care) until the deductible was met, and none thereafter until the end of the year.”
  • CBO believes the high deductibles—which would exceed annual income for some people below the poverty level, and half and a quarter of income for individuals at 175 and 375 percent of poverty—will discourage enrollment by individuals of low and modest income. It is worth noting however that the analysis of deductibles and cost-sharing did NOT take into account “any cost-sharing reductions that might be implemented through the State Stability and Innovation Program.”

Original post follows below, with budgetary estimates changed to reflect the newer CBO score…

 

On July 13, Senate leadership issued a revised draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. Changes to the bill include:

  • Modifies the current language (created in last year’s 21st Century Cures Act) allowing small businesses of under 50 employees to reimburse employees’ individual health insurance through Health Reimbursement Arrangements;
  • Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law;
  • Amends the short-term Stability Fund, by requiring the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies);
  • Increases appropriations for the long-term Stability Fund to $19.2 billion for each of calendar years 2022 through 2026, up from $6 billion in 2022 and 2023, $5 billion in 2024 and 2025, and $4 billion in 2026—an increase of $70 billion total;
  • Strikes repeal of the Medicare tax increase on “high-income” earners, as well as repeal of the net investment tax;
  • Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies);
  • Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts;
  • Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills;
  • Changes the methodology for calculating Medicaid Disproportionate Share Hospital (DSH) payment reductions, such that 1) non-expansion states’ DSH reductions would be minimized for states that have below-average reductions in the uninsured (rather than below-average enrollment in Medicaid, as under the base text); and 2) provides a carve-out treating states covering individuals through a Medicaid Section 1115 waiver as non-expansion states for purposes of having their DSH payment reductions undone;
  • Retains current law provisions allowing 90 days of retroactive Medicaid eligibility for seniors and blind and disabled populations, while restricting eligibility to the month an individual applied for the program for all other Medicaid populations;
  • Includes language allowing late-expanding Medicaid states to choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied;
  • Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion;
  • Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period;
  • Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid—with payment adjustments eligible for a 100 percent federal match, and the 15 states with the lowest population density given priority for funds;
  • Modifies the Medicaid block grant formula, prohibits Medicaid funds from being used for other health programs (a change from the base bill), and eliminates a quality standards requirement;
  • Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency;
  • Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services (current law provides for a 100 percent match only for services provided at an Indian Health Service center);
  • Makes technical and other changes to small business health plan language included in the base text;
  • Modifies language repealing the Prevention and Public Health Fund, to allow $1.25 billion in funding for Fiscal Year 2018;
  • Increases opioid funding to a total of $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research—all of which are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending;
  • Modifies language regarding continuous coverage provisions, and includes health care sharing ministries as “creditable coverage” for the purposes of imposing waiting periods;
  • Grants the Secretary of Health and Human Services the authority to exempt other individuals from the continuous coverage requirement—a provision some conservatives may be concerned gives HHS excessive authority;
  • Makes technical changes to the state innovation waiver program amendments included in the base bill;
  • Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019;
  • Applies enforcement provisions to language in Obamacare allowing states to opt-out of mandatory abortion coverage;
  • Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions;
  • Allows non-compliant plans to eliminate requirements related to actuarial value; essential health benefits; cost-sharing; guaranteed issue; community rating; waiting periods; preventive health services (including contraception); and medical loss ratios;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice;
  • States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision;
  • Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available;
  • Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option; and
  • Appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

A full summary of the bill, as amended, follows below, along with possible conservative concerns 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 fully 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 advises 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).

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Modifies eligibility thresholds for the current regime of Obamacare subsidies. Under current law, households with incomes of between 100-400 percent of the federal poverty level (FPL, $24,600 for a family of four in 2017) qualify for subsidies. This provision would change eligibility to include all households with income under 350% FPL—effectively eliminating the Medicaid “coverage gap,” whereby low-income individuals (those with incomes under 100% FPL) in states that did not expand Medicaid do not qualify for subsidized insurance.

Clarifies the definition of eligibility by substituting “qualified alien” for the current-law term “an alien lawfully present in the United States” with respect to the five-year waiting period for said aliens to receive taxpayer-funded benefits, per the welfare reform law enacted in 1996.

Changes the bidding structure for insurance subsidies. Under current law, subsidy amounts are based on the second-lowest silver plan bid in a given area—with silver plans based upon an actuarial value (the average percentage of annual health expenses covered) of 70 percent. This provision would base subsidies upon the “median cost benchmark plan,” which would be based upon an average actuarial value of 58 percent.

Modifies the existing Obamacare subsidy regime, 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 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% 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.)

Lowers the “failsafe” at which secondary indexing provisions under Obamacare would apply. Under current law, if total spending on premium subsidies exceeds 0.504% of gross domestic product annually in years after 2018, the premium subsidies would grow more slowly. (Additional information available here, and a Congressional Budget Office analysis available here.) This provision would reduce the overall cap at which the “failsafe” would apply to 0.4% of GDP.

Eliminates subsidy eligibility for households eligible for employer-subsidized health insurance. Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

Increases penalties on erroneous claims of the credit from 20 percent to 25 percent. Applies most of the above changes beginning in calendar year 2020. Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law.

Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule,” therefore continuing taxpayer funding of plans that cover abortion. (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400% FPL must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $25 billion over ten years—$18.7 billion in lower outlay spending, and $6.3 billion in additional revenues.

Some conservatives may be concerned first that, rather than repealing Obamacare, these provisions actually expand Obamacare—for instance, extending subsidies to some individuals currently not eligible. Some conservatives may also be concerned that, as with Obamacare, these provisions will create disincentives to work that would reduce the labor supply by the equivalent of millions of jobs. Finally, as noted above, some conservatives may believe that, as with Obamacare itself, enacting these policy changes through the budget reconciliation process will prevent the inclusion of strong pro-life protections, thus ensuring continued taxpayer funding of plans that cover abortion. When compared to Obamacare, these provisions reduce the deficit by a net of $295 billion over ten years—$238 billion in reduced outlay spending (the refundable portion of the subsidies, for individuals with no income tax liability), and $57 billion in increased revenue (the non-refundable portion of the subsidies, reducing individuals’ tax liability).

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. This language is substantially similar to Section 203 of the 2015/2016 reconciliation bill, with the exception of the new pro-life language. Saves $6 billion over ten years.

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. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Funds:        Creates two stability funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $15 billion each for 2018 and 2019, and $10 billion each for 2020 and 2021, ($50 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds.

Requires the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies).

Creates a longer term stability fund with a total of $132 billion in federal funding—$8 billion in 2019, $14 billion in 2020 and 2021, and $19.2 billion in 2022 through 2026. Requires a state match beginning in 2022—7 percent that year, followed by 14 percent in 2023, 21 percent in 2024, 28 percent in 2025, and 35 percent in 2026. Allows the Administrator to determine each state’s allotment from the fund; states could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states.

Long-term fund dollars could be used to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, all of the $50 billion in short-term stability funds—and $15 billion of the long-term funds ($5 billion each in 2019, 2020, and 2021)—must be used to stabilize premiums and insurance markets. The short-term stability fund requires applications from insurers; the long-term stability fund would require a one-time application from states.

Both stability funds are placed within Title XXI of the Social Security Act, which governs the State Children’s Health Insurance Program (SCHIP). While SCHIP has a statutory prohibition on the use of federal funds to pay for abortion in state SCHIP programs, it is unclear at best whether this restriction would provide sufficient pro-life protections to ensure that Obamacare plans do not provide coverage of abortion. It is unclear whether and how federal reinsurance funds provided after-the-fact (i.e., covering some high-cost claims that already occurred) can prospectively prevent coverage of abortions.

Some conservatives may be concerned first that the stability funds would amount to over $100 billion in corporate welfare payments to insurance companies; second that the funds give nearly-unilateral authority to the CMS Administrator to determine how to allocate payments among states; third that, in giving so much authority to CMS, the funds further undermine the principle of state regulation of health insurance; fourth that the funds represent a short-term budgetary gimmick—essentially, throwing taxpayer dollars at insurers to keep premiums low between now and the 2020 presidential election—that cannot or should not be sustained in the longer term; and finally that placing the funds within the SCHIP program will prove insufficient to prevent federal funding of plans that cover abortion. Spends a total of $158 billion over ten years, with additional funds to be spent after 2026.

Implementation Fund:        Provides $500 million to implement programs under the bill. Costs $500 million over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025, lowering revenues by $66 billion;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Limits on Flexible Spending Arrangement contributions, effective January 1, 2018, lowering revenues by $18.6 billion;
  • Tax on pharmaceuticals, effective January 1, 2018, lowering revenues by $25.7 billion;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion;
  • Health insurer tax (currently being suspended), lowering revenues by $144.7 billion;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion;
  • Limitation on medical expenses as an itemized deduction, effective January 1, 2017, lowering revenues by $36.1 billion; and
  • Tax on tanning services, effective September 30, 2017, lowering revenues by $600 million.

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. Lowers revenues by a total of $19.2 billion over ten years.

Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies).

Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts. Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills. No separate cost estimate provided for the revenue reduction associated with allowing HSA dollars to be used to pay for insurance premiums.

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). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

Medicaid Expansion:           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 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—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (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 through 2023.)

The bill also repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019. In general, the Medicaid provisions outlined above, when combined with the per capita cap provisions below, would save a net of $756 billion over ten years.

Finally, the bill repeals provisions regarding presumptive eligibility and the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19 billion over ten years.

Some conservatives may be concerned that the language in this bill would give expansion states a strong incentive to sign up many more individuals for Medicaid over the next seven years. Some conservatives may also be concerned that, by extending the Medicaid transition for such a long period, it will never in fact go into effect.

Disproportionate Share Hospital (DSH) Allotments:                Exempts non-expansion states from scheduled reductions in DSH payments in fiscal years 2021 through 2024, and provides an increase in DSH payments for non-expansion states in fiscal year 2020, based on a state’s Medicaid enrollment. Spends $26.5 billion over ten years.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program for; current law requires three months of retroactive eligibility. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility. Saves $1.4 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. Spends $10 billion over ten years.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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 five 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 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 2020. 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 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Late-expanding Medicaid states can choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied.

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. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion. Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period.

For years before fiscal year 2025, indexes the caps to medical inflation for children, expansion enrollees, and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation.

Includes provisions in the House bill regarding “required expenditures by certain political subdivisions.” Some conservatives may question the need to insert a parochial New York-related provision into the bill.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 2% for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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 that the use of the past several years as the “base period” for the per capita caps, benefits 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. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Home and Community-Based Services:             Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid, with such payment adjustments eligible for a 100 percent federal match. The 15 states with the lowest population density would be given priority for funds.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

Permits states to roll over block grant payments from year to year, provided that they comply with maintenance of effort requirements. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations. Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Medicaid Waivers:  Permits states to extend Medicaid managed care waivers (those approved prior to January 1, 2017, and renewed at least once) in perpetuity through a state plan amendment, with an expedited/guaranteed approval process by CMS. Requires HHS to adopt processes “encouraging States to adopt or extend waivers” regarding home and community-based services, if those waivers would improve patient access. No budgetary impact.

Coordination with States:               After January 1, 2018, prohibits CMS from finalizing any Medicaid rule unless CMS and HHS 1) provide an ongoing regular process for soliciting comments from state Medicaid agencies and Medicaid directors; 2) solicit oral and written comments in advance of any proposed rule on Medicaid; and 3) respond to said comments in the preamble of the proposed rule. No budgetary impact.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medicaid and Indian Health Service:             Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services. Current law provides for a 100 percent match only for services provided at an Indian Health Service center. Costs $3.5 billion over ten years.

Small Business Health Plans:             Amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow for creation of small business health plans. Some may question whether or not this provision will meet the “Byrd rule” test for inclusion on a budget reconciliation measure. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances, beginning in Fiscal Year 2019. Saves $7.9 billion over ten years.

Opioid Funding:       Appropriates $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research. The $45 billion in funds are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending. Spends $40.7 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” above). Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill. Spends $422 million over ten years.

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, 2019, 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medical Loss Ratios:            Permits states to determine their own medical loss ratios, beginning for plan years on or after January 1, 2019. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Insurance Waiting Periods:             Imposes waiting periods on individuals lacking continuous coverage (i.e., with a coverage gap of more than 63 days). Requires carriers to, beginning with plan years starting after January 1, 2019, impose a six-month waiting period on individuals who cannot show 12 months of continuous coverage. However, the bill states that such waiting period “shall not apply to an individual who is enrolled in health insurance coverage in the individual market on the day before the effective date of the coverage in which the individual is newly enrolling.” The waiting period would extend for six months from the date of application for coverage, or the first date of the new plan year.

Permits the Department of Health and Human Services to require insurers to provide certificates of continuous coverage, and includes health care sharing ministries as “creditable coverage” for purposes of the requirement. Prohibits waiting periods for newborns and adopted children, provided they obtain coverage within 30 days of birth or adoption, and other individuals the Secretary may designate—an overly broad grant of authority that some conservatives may believe will give excessive power to federal bureaucrats.

Some conservatives may be concerned that this provision, rather than repealing Obamacare’s regulatory mandates, would further entrench a Washington-centered structure, one that has led premiums to more than double since Obamacare took effect. Some conservatives may also note that this provision will not take effect until the 2019 plan year—meaning that the effective repeal of the individual mandate upon the bill’s enactment, coupled with the continuation of Obamacare’s regulatory structure, could further destabilize insurance markets over the next 18 months. CBO believes this provision will only modestly increase the number of people with health insurance. No separate budgetary impact noted; included in larger estimate of coverage provisions.

State Innovation Waivers:              Amends Section 1332 of Obamacare regarding state innovation waivers. Eliminates the requirement that states codify their waivers in state law, by allowing a Governor or State Insurance Commissioner to provide authority for said waivers. Appropriates $2 billion for Fiscal Years 2017 through 2019 to allow states to submit waiver applications, and allows states to use the long-term stability fund to carry out the plan. Allows for an expedited approval process “if the Secretary determines that such expedited process is necessary to respond to an urgent or emergency situation with respect to health insurance coverage within a State.”

Requires the HHS Secretary to approve all waivers, unless they will increase the federal budget deficit—a significant change from the Obamacare parameters, which many conservatives viewed as unduly restrictive. (For more background on Section 1332 waivers, see this article.)

Provides for a standard eight-year waiver (unless a state requests a shorter period), with automatic renewals upon application by the state, and may not be cancelled by the Secretary before the expiration of the eight-year period.

Provides that Section 1332 waivers approved prior to enactment shall be governed under the “old” (i.e., Obamacare) parameters, that waiver applications submitted after enactment shall be governed under the “new” parameters, and that states with pending (but not yet approved) applications at the time of enactment can choose to have their waivers governed under the “old” or the “new” parameters. Spends $2 billion over ten years. With respect to the fiscal impact of the waivers themselves, CBO noted no separate budgetary impact noted, including them in the larger estimate of coverage provisions.

Catastrophic Coverage:      Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. 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. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Title III

“Consumer Freedom” Option:             Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions. Allows non-compliant plans to eliminate requirements related to:

  • Actuarial value;
  • Essential health benefits;
  • Cost-sharing;
  • Guaranteed issue;
  • Community rating;
  • Waiting periods;
  • Preventive health services (including contraception); and
  • Medical loss ratios.

Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions. Also does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice.

States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision. Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available.

Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option. Also appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

UPDATED Summary of Senate Health Care Legislation

On July 13, Senate leadership issued a revised draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. Changes to the bill include:

  • Modifies the current language (created in last year’s 21st Century Cures Act) allowing small businesses of under 50 employees to reimburse employees’ individual health insurance through Health Reimbursement Arrangements;
  • Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law;
  • Amends the short-term Stability Fund, by requiring the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies);
  • Increases appropriations for the long-term Stability Fund to $19.2 billion for each of calendar years 2022 through 2026, up from $6 billion in 2022 and 2023, $5 billion in 2024 and 2025, and $4 billion in 2026—an increase of $70 billion total;
  • Strikes repeal of the Medicare tax increase on “high-income” earners, as well as repeal of the net investment tax;
  • Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies);
  • Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts;
  • Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills;
  • Changes the methodology for calculating Medicaid Disproportionate Share Hospital (DSH) payment reductions, such that 1) non-expansion states’ DSH reductions would be minimized for states that have below-average reductions in the uninsured (rather than below-average enrollment in Medicaid, as under the base text); and 2) provides a carve-out treating states covering individuals through a Medicaid Section 1115 waiver as non-expansion states for purposes of having their DSH payment reductions undone;
  • Retains current law provisions allowing 90 days of retroactive Medicaid eligibility for seniors and blind and disabled populations, while restricting eligibility to the month an individual applied for the program for all other Medicaid populations;
  • Includes language allowing late-expanding Medicaid states to choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied;
  • Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion;
  • Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period;
  • Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid—with payment adjustments eligible for a 100 percent federal match, and the 15 states with the lowest population density given priority for funds;
  • Modifies the Medicaid block grant formula, prohibits Medicaid funds from being used for other health programs (a change from the base bill), and eliminates a quality standards requirement;
  • Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency;
  • Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services (current law provides for a 100 percent match only for services provided at an Indian Health Service center);
  • Makes technical and other changes to small business health plan language included in the base text;
  • Modifies language repealing the Prevention and Public Health Fund, to allow $1.25 billion in funding for Fiscal Year 2018;
  • Increases opioid funding to a total of $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research—all of which are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending;
  • Modifies language regarding continuous coverage provisions, and includes health care sharing ministries as “creditable coverage” for the purposes of imposing waiting periods;
  • Grants the Secretary of Health and Human Services the authority to exempt other individuals from the continuous coverage requirement—a provision some conservatives may be concerned gives HHS excessive authority;
  • Makes technical changes to the state innovation waiver program amendments included in the base bill;
  • Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019;
  • Applies enforcement provisions to language in Obamacare allowing states to opt-out of mandatory abortion coverage;
  • Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions;
  • Allows non-compliant plans to eliminate requirements related to actuarial value; essential health benefits; cost-sharing; guaranteed issue; community rating; waiting periods; preventive health services (including contraception); and medical loss ratios;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice;
  • States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision;
  • Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available;
  • Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option; and
  • Appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

A full summary of the bill, as amended, follows below, along with possible conservative concerns 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.

Ten-year fiscal impacts from the original Congressional Budget Office score are noted—however, these estimates do not reflect the updated language. An updated CBO score of the revised draft is expected early next week.

Of particular note: It is unclear whether this legislative language has been fully 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 advises 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).

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Modifies eligibility thresholds for the current regime of Obamacare subsidies. Under current law, households with incomes of between 100-400 percent of the federal poverty level (FPL, $24,600 for a family of four in 2017) qualify for subsidies. This provision would change eligibility to include all households with income under 350% FPL—effectively eliminating the Medicaid “coverage gap,” whereby low-income individuals (those with incomes under 100% FPL) in states that did not expand Medicaid do not qualify for subsidized insurance.

Clarifies the definition of eligibility by substituting “qualified alien” for the current-law term “an alien lawfully present in the United States” with respect to the five-year waiting period for said aliens to receive taxpayer-funded benefits, per the welfare reform law enacted in 1996.

Changes the bidding structure for insurance subsidies. Under current law, subsidy amounts are based on the second-lowest silver plan bid in a given area—with silver plans based upon an actuarial value (the average percentage of annual health expenses covered) of 70 percent. This provision would base subsidies upon the “median cost benchmark plan,” which would be based upon an average actuarial value of 58 percent.

Modifies the existing Obamacare subsidy regime, 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 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% 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.)

Lowers the “failsafe” at which secondary indexing provisions under Obamacare would apply. Under current law, if total spending on premium subsidies exceeds 0.504% of gross domestic product annually in years after 2018, the premium subsidies would grow more slowly. (Additional information available here, and a Congressional Budget Office analysis available here.) This provision would reduce the overall cap at which the “failsafe” would apply to 0.4% of GDP.

Eliminates subsidy eligibility for households eligible for employer-subsidized health insurance. Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

Increases penalties on erroneous claims of the credit from 20 percent to 25 percent. Applies most of the above changes beginning in calendar year 2020. Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law.

Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule,” therefore continuing taxpayer funding of plans that cover abortion. (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400% FPL must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $25 billion over ten years—$18.7 billion in lower outlay spending, and $6.3 billion in additional revenues.

Some conservatives may be concerned first that, rather than repealing Obamacare, these provisions actually expand Obamacare—for instance, extending subsidies to some individuals currently not eligible. Some conservatives may also be concerned that, as with Obamacare, these provisions will create disincentives to work that would reduce the labor supply by the equivalent of millions of jobs. Finally, as noted above, some conservatives may believe that, as with Obamacare itself, enacting these policy changes through the budget reconciliation process will prevent the inclusion of strong pro-life protections, thus ensuring continued taxpayer funding of plans that cover abortion. When compared to Obamacare, these provisions reduce the deficit by a net of $292 billion over ten years—$235 billion in reduced outlay spending (the refundable portion of the subsidies, for individuals with no income tax liability), and $57 billion in increased revenue (the non-refundable portion of the subsidies, reducing individuals’ tax liability).

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. This language is substantially similar to Section 203 of the 2015/2016 reconciliation bill, with the exception of the new pro-life language. Saves $6 billion over ten years.

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. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Funds:        Creates two stability funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $15 billion each for 2018 and 2019, and $10 billion each for 2020 and 2021, ($50 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds.

Requires the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies).

Creates a longer term stability fund with a total of $132 billion in federal funding—$8 billion in 2019, $14 billion in 2020 and 2021, and $19.2 billion in 2022 through 2026. Requires a state match beginning in 2022—7 percent that year, followed by 14 percent in 2023, 21 percent in 2024, 28 percent in 2025, and 35 percent in 2026. Allows the Administrator to determine each state’s allotment from the fund; states could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states.

Long-term fund dollars could be used to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, all of the $50 billion in short-term stability funds—and $15 billion of the long-term funds ($5 billion each in 2019, 2020, and 2021)—must be used to stabilize premiums and insurance markets. The short-term stability fund requires applications from insurers; the long-term stability fund would require a one-time application from states.

Both stability funds are placed within Title XXI of the Social Security Act, which governs the State Children’s Health Insurance Program (SCHIP). While SCHIP has a statutory prohibition on the use of federal funds to pay for abortion in state SCHIP programs, it is unclear at best whether this restriction would provide sufficient pro-life protections to ensure that Obamacare plans do not provide coverage of abortion. It is unclear whether and how federal reinsurance funds provided after-the-fact (i.e., covering some high-cost claims that already occurred) can prospectively prevent coverage of abortions.

Some conservatives may be concerned first that the stability funds would amount to over $100 billion in corporate welfare payments to insurance companies; second that the funds give nearly-unilateral authority to the CMS Administrator to determine how to allocate payments among states; third that, in giving so much authority to CMS, the funds further undermine the principle of state regulation of health insurance; fourth that the funds represent a short-term budgetary gimmick—essentially, throwing taxpayer dollars at insurers to keep premiums low between now and the 2020 presidential election—that cannot or should not be sustained in the longer term; and finally that placing the funds within the SCHIP program will prove insufficient to prevent federal funding of plans that cover abortion. Spends a total of $107 billion over ten years.

Implementation Fund:        Provides $500 million to implement programs under the bill. Costs $500 million over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025, lowering revenues by $66 billion;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Limits on Flexible Spending Arrangement contributions, effective January 1, 2018, lowering revenues by $18.6 billion;
  • Tax on pharmaceuticals, effective January 1, 2018, lowering revenues by $25.7 billion;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion;
  • Health insurer tax (currently being suspended), lowering revenues by $144.7 billion;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion;
  • Limitation on medical expenses as an itemized deduction, effective January 1, 2017, lowering revenues by $36.1 billion; and
  • Tax on tanning services, effective September 30, 2017, lowering revenues by $600 million.

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. Lowers revenues by a total of $19.2 billion over ten years.

Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies).

Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts. Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills.

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). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

Medicaid Expansion:           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 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—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (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 through 2023.)

The bill also repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019. In general, the Medicaid provisions outlined above, when combined with the per capita cap provisions below, would save a net of $772 billion over ten years.

Finally, the bill repeals provisions regarding presumptive eligibility and the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19 billion over ten years.

Some conservatives may be concerned that the language in this bill would give expansion states a strong incentive to sign up many more individuals for Medicaid over the next seven years. Some conservatives may also be concerned that, by extending the Medicaid transition for such a long period, it will never in fact go into effect.

Disproportionate Share Hospital (DSH) Allotments:                Exempts non-expansion states from scheduled reductions in DSH payments in fiscal years 2021 through 2024, and provides an increase in DSH payments for non-expansion states in fiscal year 2020, based on a state’s Medicaid enrollment. Spends $19 billion over ten years.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program for; current law requires three months of retroactive eligibility. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility. Saves $5 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. Spends $10 billion over ten years.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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 five 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 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 2020. 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 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Late-expanding Medicaid states can choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied.

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. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion. Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period.

For years before fiscal year 2025, indexes the caps to medical inflation for children, expansion enrollees, and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation.

Includes provisions in the House bill regarding “required expenditures by certain political subdivisions.” Some conservatives may question the need to insert a parochial New York-related provision into the bill.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 2% for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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 that the use of the past several years as the “base period” for the per capita caps, benefits 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. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Home and Community-Based Services:             Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid, with such payment adjustments eligible for a 100 percent federal match. The 15 states with the lowest population density would be given priority for funds.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

Permits states to roll over block grant payments from year to year, provided that they comply with maintenance of effort requirements. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations. Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Medicaid Waivers:  Permits states to extend Medicaid managed care waivers (those approved prior to January 1, 2017, and renewed at least once) in perpetuity through a state plan amendment, with an expedited/guaranteed approval process by CMS. Requires HHS to adopt processes “encouraging States to adopt or extend waivers” regarding home and community-based services, if those waivers would improve patient access. No budgetary impact.

Coordination with States:               After January 1, 2018, prohibits CMS from finalizing any Medicaid rule unless CMS and HHS 1) provide an ongoing regular process for soliciting comments from state Medicaid agencies and Medicaid directors; 2) solicit oral and written comments in advance of any proposed rule on Medicaid; and 3) respond to said comments in the preamble of the proposed rule. No budgetary impact.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medicaid and Indian Health Service:             Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services. Current law provides for a 100 percent match only for services provided at an Indian Health Service center.

Small Business Health Plans:             Amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow for creation of small business health plans. Some may question whether or not this provision will meet the “Byrd rule” test for inclusion on a budget reconciliation measure. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances, beginning in Fiscal Year 2019.

Opioid Funding:       Appropriates $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research. The $45 billion in funds are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending.

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” above). Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill. Spends $422 million over ten years.

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, 2019, 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medical Loss Ratios:            Permits states to determine their own medical loss ratios, beginning for plan years on or after January 1, 2019. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Insurance Waiting Periods:             Imposes waiting periods on individuals lacking continuous coverage (i.e., with a coverage gap of more than 63 days). Requires carriers to, beginning with plan years starting after January 1, 2019, impose a six-month waiting period on individuals who cannot show 12 months of continuous coverage. However, the bill states that such waiting period “shall not apply to an individual who is enrolled in health insurance coverage in the individual market on the day before the effective date of the coverage in which the individual is newly enrolling.” The waiting period would extend for six months from the date of application for coverage, or the first date of the new plan year.

Permits the Department of Health and Human Services to require insurers to provide certificates of continuous coverage, and includes health care sharing ministries as “creditable coverage” for purposes of the requirement. Prohibits waiting periods for newborns and adopted children, provided they obtain coverage within 30 days of birth or adoption, and other individuals the Secretary may designate—an overly broad grant of authority that some conservatives may believe will give excessive power to federal bureaucrats.

Some conservatives may be concerned that this provision, rather than repealing Obamacare’s regulatory mandates, would further entrench a Washington-centered structure, one that has led premiums to more than double since Obamacare took effect. Some conservatives may also note that this provision will not take effect until the 2019 plan year—meaning that the effective repeal of the individual mandate upon the bill’s enactment, coupled with the continuation of Obamacare’s regulatory structure, could further destabilize insurance markets over the next 18 months. CBO believes this provision will only modestly increase the number of people with health insurance. No separate budgetary impact noted; included in larger estimate of coverage provisions.

State Innovation Waivers:              Amends Section 1332 of Obamacare regarding state innovation waivers. Eliminates the requirement that states codify their waivers in state law, by allowing a Governor or State Insurance Commissioner to provide authority for said waivers. Appropriates $2 billion for Fiscal Years 2017 through 2019 to allow states to submit waiver applications, and allows states to use the long-term stability fund to carry out the plan. Allows for an expedited approval process “if the Secretary determines that such expedited process is necessary to respond to an urgent or emergency situation with respect to health insurance coverage within a State.”

Requires the HHS Secretary to approve all waivers, unless they will increase the federal budget deficit—a significant change from the Obamacare parameters, which many conservatives viewed as unduly restrictive. (For more background on Section 1332 waivers, see this article.)

Provides for a standard eight-year waiver (unless a state requests a shorter period), with automatic renewals upon application by the state, and may not be cancelled by the Secretary before the expiration of the eight-year period.

Provides that Section 1332 waivers approved prior to enactment shall be governed under the “old” (i.e., Obamacare) parameters, that waiver applications submitted after enactment shall be governed under the “new” parameters, and that states with pending (but not yet approved) applications at the time of enactment can choose to have their waivers governed under the “old” or the “new” parameters. Spends $2 billion over ten years. With respect to the fiscal impact of the waivers themselves, CBO noted no separate budgetary impact noted, including them in the larger estimate of coverage provisions.

Catastrophic Coverage:      Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. 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. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Title III

“Consumer Freedom” Option:             Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions. Allows non-compliant plans to eliminate requirements related to:

  • Actuarial value;
  • Essential health benefits;
  • Cost-sharing;
  • Guaranteed issue;
  • Community rating;
  • Waiting periods;
  • Preventive health services (including contraception); and
  • Medical loss ratios.

Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions. Also does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice.

States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision. Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available.

Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option. Also appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

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.

Updated Summary of Senate Republicans’ Discussion Draft

On June 26, Senate leadership released an updated discussion draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. A detailed summary of the bill is below, along with possible conservative concerns 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. Ten-year fiscal impacts from the Congressional Budget Office score are also noted where applicable.

Of particular note: It is unclear whether this legislative language has been fully 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 advises 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).

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Modifies eligibility thresholds for the current regime of Obamacare subsidies. Under current law, households with incomes of between 100-400 percent of the federal poverty level (FPL, $24,600 for a family of four in 2017) qualify for subsidies. This provision would change eligibility to include all households with income under 350% FPL—effectively eliminating the Medicaid “coverage gap,” whereby low-income individuals (those with incomes under 100% FPL) in states that did not expand Medicaid do not qualify for subsidized insurance.

Clarifies the definition of eligibility by substituting “qualified alien” for the current-law term “an alien lawfully present in the United States” with respect to the five-year waiting period for said aliens to receive taxpayer-funded benefits, per the welfare reform law enacted in 1996.

Changes the bidding structure for insurance subsidies. Under current law, subsidy amounts are based on the second-lowest silver plan bid in a given area—with silver plans based upon an actuarial value (the average percentage of annual health expenses covered) of 70 percent. This provision would base subsidies upon the “median cost benchmark plan,” which would be based upon an average actuarial value of 58 percent.

Modifies the existing Obamacare subsidy regime, 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 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% 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.)

Lowers the “failsafe” at which secondary indexing provisions under Obamacare would apply. Under current law, if total spending on premium subsidies exceeds 0.504% of gross domestic product annually in years after 2018, the premium subsidies would grow more slowly. (Additional information available here, and a Congressional Budget Office analysis available here.) This provision would reduce the overall cap at which the “failsafe” would apply to 0.4% of GDP.

Eliminates subsidy eligibility for households eligible for employer-subsidized health insurance. Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

Increases penalties on erroneous claims of the credit from 20 percent to 25 percent. Applies most of the above changes beginning in calendar year 2020.

Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule,” therefore continuing taxpayer funding of plans that cover abortion. (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400% FPL must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $25 billion over ten years—$18.7 billion in lower outlay spending, and $6.3 billion in additional revenues.

Some conservatives may be concerned first that, rather than repealing Obamacare, these provisions actually expand Obamacare—for instance, extending subsidies to some individuals currently not eligible. Some conservatives may also be concerned that, as with Obamacare, these provisions will create disincentives to work that would reduce the labor supply by the equivalent of millions of jobs. Finally, as noted above, some conservatives may believe that, as with Obamacare itself, enacting these policy changes through the budget reconciliation process will prevent the inclusion of strong pro-life protections, thus ensuring continued taxpayer funding of plans that cover abortion. When compared to Obamacare, these provisions reduce the deficit by a net of $292 billion over ten years—$235 billion in reduced outlay spending (the refundable portion of the subsidies, for individuals with no income tax liability), and $57 billion in increased revenue (the non-refundable portion of the subsidies, reducing individuals’ tax liability).

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. This language is substantially similar to Section 203 of the 2015/2016 reconciliation bill, with the exception of the new pro-life language. Saves $6 billion over ten years.

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. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Funds:        Creates two stability funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $15 billion each for 2018 and 2019, and $10 billion each for 2020 and 2021, ($50 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds.

Creates a longer term stability fund with a total of $62 billion in federal funding—$8 billion in 2019, $14 billion in 2020 and 2021, $6 billion in 2022 and 2023, $5 billion in 2024 and 2025, and $4 billion in 2026. Requires a state match beginning in 2022—7 percent that year, followed by 14 percent in 2023, 21 percent in 2024, 28 percent in 2025, and 35 percent in 2026. Allows the Administrator to determine each state’s allotment from the fund; states could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states.

Long-term fund dollars could be used to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, all of the $50 billion in short-term stability funds—and $15 billion of the long-term funds ($5 billion each in 2019, 2020, and 2021)—must be used to stabilize premiums and insurance markets. The short-term stability fund requires applications from insurers; the long-term stability fund would require a one-time application from states.

Both stability funds are placed within Title XXI of the Social Security Act, which governs the State Children’s Health Insurance Program (SCHIP). While SCHIP has a statutory prohibition on the use of federal funds to pay for abortion in state SCHIP programs, it is unclear at best whether this restriction would provide sufficient pro-life protections to ensure that Obamacare plans do not provide coverage of abortion. It is unclear whether and how federal reinsurance funds provided after-the-fact (i.e., covering some high-cost claims that already occurred) can prospectively prevent coverage of abortions.

Some conservatives may be concerned first that the stability funds would amount to over $100 billion in corporate welfare payments to insurance companies; second that the funds give nearly-unilateral authority to the CMS Administrator to determine how to allocate payments among states; third that, in giving so much authority to CMS, the funds further undermine the principle of state regulation of health insurance; fourth that the funds represent a short-term budgetary gimmick—essentially, throwing taxpayer dollars at insurers to keep premiums low between now and the 2020 presidential election—that cannot or should not be sustained in the longer term; and finally that placing the funds within the SCHIP program will prove insufficient to prevent federal funding of plans that cover abortion. Spends a total of $107 billion over ten years.

Implementation Fund:        Provides $500 million to implement programs under the bill. Costs $500 million over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025, lowering revenues by $66 billion;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Limits on Flexible Spending Arrangement contributions, effective January 1, 2018, lowering revenues by $18.6 billion;
  • Tax on pharmaceuticals, effective January 1, 2018, lowering revenues by $25.7 billion;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion;
  • Health insurer tax (currently being suspended), lowering revenues by $144.7 billion;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion;
  • Limitation on medical expenses as an itemized deduction, effective January 1, 2017, lowering revenues by $36.1 billion;
  • Medicare tax on “high-income” individuals, effective January 1, 2023, lowering revenues by $58.6 billion;
  • Tax on tanning services, effective September 30, 2017, lowering revenues by $600 million;
  • Net investment tax, effective January 1, 2017, lowering revenues by $172.2 billion;
  • Limitation on deductibility of salaries to insurance industry executives, effective January 1, 2017, lowering revenues by $500 million.

These provisions are generally similar to Sections 209 through 221 of the 2015/2016 reconciliation bill. However, the bill does NOT repeal the economic substance tax, which WAS repealed in Section 222 of the 2015/2016 bill. Moreover, the bill delays repeal of the Medicare “high-income” tax (which is not indexed to inflation) for an additional six years, until 2023.

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. Lowers revenues by a total of $19.2 billion 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). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

Medicaid Expansion:           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 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—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (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 through 2023.)

The bill also repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019. In general, the Medicaid provisions outlined above, when combined with the per capita cap provisions below, would save a net of $772 billion over ten years.

Finally, the bill repeals provisions regarding presumptive eligibility and the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19 billion over ten years.

Some conservatives may be concerned that the language in this bill would give expansion states a strong incentive to sign up many more individuals for Medicaid over the next seven years. Some conservatives may also be concerned that, by extending the Medicaid transition for such a long period, it will never in fact go into effect.

Disproportionate Share Hospital (DSH) Allotments:                Exempts non-expansion states from scheduled reductions in DSH payments in fiscal years 2021 through 2024, and provides an increase in DSH payments for non-expansion states in fiscal year 2020, based on a state’s Medicaid enrollment. Spends $19 billion over ten years.

Retroactive 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. Saves $5 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. Spends $10 billion over ten years.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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 five 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 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 2020. 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 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period.

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.

For years before fiscal year 2025, indexes the caps to medical inflation for children, expansion enrollees, and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation.

Includes provisions in the House bill regarding “required expenditures by certain political subdivisions.” Some conservatives may question the need to insert a parochial New York-related provision into the bill.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 2% for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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 that the use of the past several years as the “base period” for the per capita caps, benefits 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. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

Permits states to roll over block grant payments from year to year, provided that they comply with maintenance of effort requirements. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Medicaid Waivers:  Permits states to extend Medicaid managed care waivers (those approved prior to January 1, 2017, and renewed at least once) in perpetuity through a state plan amendment, with an expedited/guaranteed approval process by CMS. Requires HHS to adopt processes “encouraging States to adopt or extend waivers” regarding home and community-based services, if those waivers would improve patient access. No budgetary impact.

Coordination with States:               After January 1, 2018, prohibits CMS from finalizing any Medicaid rule unless CMS and HHS 1) provide an ongoing regular process for soliciting comments from state Medicaid agencies and Medicaid directors; 2) solicit oral and written comments in advance of any proposed rule on Medicaid; and 3) respond to said comments in the preamble of the proposed rule. No budgetary impact.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Small Business Health Plans:             Amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow for creation of small business health plans. Some may question whether or not this provision will meet the “Byrd rule” test for inclusion on a budget reconciliation measure. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Title II

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 $9 billion over ten years.

Opioid Funding:       Appropriates $2 billion for Fiscal Year 2018 for the HHS Secretary to distribute “grants to states to support substance use disorder treatment and recovery support services.” Spends $2 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” above). Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill. Spends $422 million over ten years.

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, 2019, 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. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medical Loss Ratios:            Permits states to determine their own medical loss ratios, beginning for plan years on or after January 1, 2019. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Insurance Waiting Periods:             Imposes waiting periods on individuals lacking continuous coverage (i.e., with a coverage gap of more than 63 days). Requires carriers to, beginning with plan years starting after January 1, 2019, impose a six-month waiting period on individuals who cannot show 12 months of continuous coverage. However, the bill states that such waiting period “shall not apply to an individual who is enrolled in health insurance coverage in the individual market on the day before the effective date of the coverage in which the individual is newly enrolling.” The waiting period would extend for six months from the date of application for coverage, or the first date of the new plan year.

Permits the Department of Health and Human Services to require insurers to provide certificates of continuous coverage. Prohibits waiting periods for newborns and adopted children, provided they obtain coverage within 30 days of birth or adoption.

Some conservatives may be concerned that this provision, rather than repealing Obamacare’s regulatory mandates, would further entrench a Washington-centered structure, one that has led premiums to more than double since Obamacare took effect. Some conservatives may also note that this provision will not take effect until the 2019 plan year—meaning that the effective repeal of the individual mandate upon the bill’s enactment, coupled with the continuation of Obamacare’s regulatory structure, could further destabilize insurance markets over the next 18 months. CBO believes this provision will only modestly increase the number of people with health insurance. No separate budgetary impact noted; included in larger estimate of coverage provisions.

State Innovation Waivers:              Amends Section 1332 of Obamacare regarding state innovation waivers. Eliminates the requirement that states codify their waivers in state law, by allowing a Governor or State Insurance Commissioner to provide authority for said waivers. Appropriates $2 billion for Fiscal Years 2017 through 2019 to allow states to submit waiver applications, and allows states to use the long-term stability fund to carry out the plan. Allows for an expedited approval process “if the Secretary determines that such expedited process is necessary to respond to an urgent or emergency situation with respect to health insurance coverage within a State.”

Requires the HHS Secretary to approve all waivers, unless they will increase the federal budget deficit—a significant change from the Obamacare parameters, which many conservatives viewed as unduly restrictive. (For more background on Section 1332 waivers, see this article.)

Provides for a standard eight-year waiver (unless a state requests a shorter period), with automatic renewals upon application by the state, and may not be cancelled by the Secretary before the expiration of the eight-year period.

Provides that Section 1332 waivers approved prior to enactment shall be governed under the “old” (i.e., Obamacare) parameters, that waiver applications submitted after enactment shall be governed under the “new” parameters, and that states with pending (but not yet approved) applications at the time of enactment can choose to have their waivers governed under the “old” or the “new” parameters. Spends $2 billion over ten years. With respect to the fiscal impact of the waivers themselves, CBO noted no separate budgetary impact noted, including them in the larger estimate of coverage provisions.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. 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. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Top Ten Ways Senate Obamacare Bill Is #FakeRepeal

1.     Retains Obamacare Insurance Subsides.  The bill modifies, but does not repeal, Obamacare’s system of insurance subsidies—an expansion of the welfare state, administered through the tax code.

2.     Retains Obamacare Medicaid Expansion.           The bill as written would never repeal Obamacare’s massive expansion of Medicaid to able-bodied adults, while it would not fully eliminate the enhanced match states currently receive to cover those adults until 2024—nearly seven years from now.

3.     Expands Obamacare Insurance Subsidies.             Rather than repealing all of the law “root and branch,” as Sen. McConnell claimed was his goal, the bill instead expands eligibility for Obamacare’s subsidy regime. Some conservatives may question the need to “fix” Obamacare, when the legislation should repeal Obamacare.

4.     Retains ALL Obamacare Regulations.         While modifying some and allowing states to waive others, the bill does not repeal any of Obamacare’s onerous insurance regulations—the prime drivers of the premium spikes that have seen rates more than double since Obamacare went into effect.

5.     Retains Obamacare’s Undermining of State Sovereignty.   Because the bill keeps in place the federal mandates associated with Obamacare, states must ask permission to opt-out of just some parts of Obamacare, which remains the default standard. This turning of federalism on its head will allow Democratic Governors—and/or a future Democratic Administration—to reinstitute Obamacare mandates quickly and easily.

6.     Appropriates Obamacare Cost-Sharing Reductions.    Unlike Obamacare itself, the bill actually spends federal tax dollars on cost-sharing reductions authorized, but not appropriated, under the law. While conservatives might support a temporary appropriation to ensure a stable transition as Obamacare is fully repealed, the bill does the former—but certainly not the latter.

7.     Extends and Expands Obamacare’s Corporate Welfare Bailouts.    The bill includes not one, but two, separate “stability funds” designed to make slush fund payments to insurance companies. Between now and 2021, the bill would spend at least $65 billion on such payments—over and above the cost-sharing reduction subsidies listed above.

8.     Includes Obamacare’s Work Disincentives.    The Congressional Budget Office previously estimated that the subsidy “cliffs” included in Obamacare would discourage work—because individuals could lose thousands of dollars in subsidies by gaining one additional dollar of income—and that the law would reduce the labor supply by the equivalent of over two million jobs. The Senate bill retains those subsidy “cliffs.”

9.     Continues Obamacare Pattern of Giving Too Much Authority to Federal Bureaucrats.      The bill gives near-blanket authority to the Administration on several fronts—from creating the “stability funds” to giving Medicaid incentives to states—that would allow federal bureaucrats to abuse this excessive grant of power.

10.  Obamacare Architect Admits It’s Not Repeal.  Speaking on CNN Thursday, famed Obamacare architect Jonathan Gruber said that “this is no longer an Obamacare repeal bill—that’s good.” He continued: “If you look at what’s criticized [about] Obamacare, it was subsidies, it was regulations…this law wouldn’t really change those…It really [doesn’t] change very much.” Those admissions come from an individual who received hundreds of thousands of dollars from the Obama Administration to consult on Obamacare.

A PDF version of this document can be found on the Texas Public Policy Foundation website.

Summary of Senate Republicans’ Obamacare Legislation

JUNE 26 UPDATE: Senate leadership has introduced a slightly modified version of the bill; text available here. The language makes certain definitional changes regarding use of the “stability fund” in Section 106 of the measure.

The revised language also adds a new Section 206, imposing waiting periods on individuals lacking continuous coverage (i.e., with a coverage gap of more than 63 days). Requires carriers to, beginning with plan years starting after January 1, 2019, impose a six-month waiting period on individuals who cannot show 12 months of continuous coverage. However, the bill states that such waiting period “shall not apply to an individual who is enrolled in health insurance coverage in the individual market on the day before the effective date of the coverage in which the individual is newly enrolling.” The waiting period would extend for six months from the date of application for coverage, or the first date of the new plan year.

Permits the Department of Health and Human Services to require insurers to provide certificates of continuous coverage. Prohibits waiting periods for newborns and adopted children, provided they obtain coverage within 30 days of birth or adoption.

Some conservatives may be concerned that this provision, rather than repealing Obamacare’s regulatory mandates, would further entrench a Washington-centered structure, one that has led premiums to more than double since Obamacare took effect. Some conservatives may also note that this provision will not take effect until the 2019 plan year — meaning that the effective repeal of the individual mandate upon the bill’s enactment, coupled with the continuation of Obamacare’s regulatory structure, could further destabilize insurance markets over the next 18 months.

Original post follows below…

A PDF version of this document can be found at the Texas Public Policy Foundation website.

On June 22, Senate leadership released a discussion draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. A detailed summary of the bill is below, along with possible conservative concerns 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 fully 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 advises 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 complete bill and CBO score, it is entirely possible the Parliamentarian has not fully 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

Revisions to Obamacare Subsidies:             Modifies eligibility thresholds for the current regime of Obamacare subsidies. Under current law, households with incomes of between 100-400 percent of the federal poverty level (FPL, $24,600 for a family of four in 2017) qualify for subsidies. This provision would change eligibility to include all households with income under 350% FPL—effectively eliminating the Medicaid “coverage gap,” whereby low-income individuals (those with incomes under 100% FPL) in states that did not expand Medicaid do not qualify for subsidized insurance.

Clarifies the definition of eligibility by substituting “qualified alien” for the current-law term “an alien lawfully present in the United States” with respect to the five-year waiting period for said aliens to receive taxpayer-funded benefits, per the welfare reform law enacted in 1996.

Changes the bidding structure for insurance subsidies. Under current law, subsidy amounts are based on the second-lowest silver plan bid in a given area—with silver plans based upon an actuarial value (the average percentage of annual health expenses covered) of 70 percent. This provision would base subsidies upon the “median cost benchmark plan,” which would be based upon an average actuarial value of 58 percent.

Modifies the existing Obamacare subsidy regime, 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 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% 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.)

Lowers the “failsafe” at which secondary indexing provisions under Obamacare would apply. Under current law, if total spending on premium subsidies exceeds 0.504% of gross domestic product annually in years after 2018, the premium subsidies would grow more slowly. (Additional information available here, and a Congressional Budget Office analysis available here.) This provision would reduce the overall cap at which the “failsafe” would apply to 0.4% of GDP.

Eliminates eligibility for subsidies for households eligible for employer-sponsored health insurance. Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

Increases penalties on erroneous claims of the credit from 20 percent to 25 percent. Applies most of the above changes beginning in calendar year 2020.

Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule,” therefore continuing taxpayer funding of plans that cover abortion. (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400% FPL must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place.

Some conservatives may be concerned first that, rather than repealing Obamacare, these provisions actually expand Obamacare—for instance, extending subsidies to some individuals currently not eligible. Some conservatives may also be concerned that, as with Obamacare, these provisions will create disincentives to work that would reduce the labor supply by the equivalent of millions of jobs. Finally, as noted above, some conservatives may believe that, as with Obamacare itself, enacting these policy changes through the budget reconciliation process will prevent the inclusion of strong pro-life protections, thus ensuring continued taxpayer funding of plans that cover abortion.

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. This language is substantially similar to Section 203 of the 2015/2016 reconciliation bill, with the exception of the new pro-life language.

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.

Stability Funds:        Creates two stability funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $15 billion each for 2018 and 2019, and $10 billion each for 2020 and 2021, ($50 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds.

Creates a longer term stability fund with a total of $62 billion in federal funding—$8 billion in 2019, $14 billion in 2020 and 2021, $6 billion in 2022 and 2023, $5 billion in 2024 and 2025, and $4 billion in 2026. Requires a state match beginning in 2022—7 percent that year, followed by 14 percent in 2023, 21 percent in 2024, 28 percent in 2025, and 35 percent in 2026. Allows the Administrator to determine each state’s allotment from the fund; states could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states.

Long-term fund dollars could be used to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, all of the $50 billion in short-term stability funds—and $15 billion of the long-term funds ($5 billion each in 2019, 2020, and 2021)—must be used to stabilize premiums and insurance markets. The short-term stability fund requires applications from insurers; the long-term stability fund would require a one-time application from states.

Both stability funds are placed within Title XXI of the Social Security Act, which governs the State Children’s Health Insurance Program (SCHIP). While SCHIP has a statutory prohibition on the use of federal funds to pay for abortion in state SCHIP programs, it is unclear at best whether this restriction would provide sufficient pro-life protections to ensure that Obamacare plans do not provide coverage of abortion. It is unclear whether and how federal reinsurance funds provided after-the-fact (i.e., covering some high-cost claims that already occurred) can prospectively prevent coverage of abortions.

Some conservatives may be concerned first that the stability funds would amount to over $100 billion in corporate welfare payments to insurance companies; second that the funds give nearly-unilateral authority to the CMS Administrator to determine how to allocate payments among states; third that, in giving so much authority to CMS, the funds further undermine the principle of state regulation of health insurance; fourth that the funds represent a short-term budgetary gimmick—essentially, throwing taxpayer dollars at insurers to keep premiums low between now and the 2020 presidential election—that cannot or should not be sustained in the longer term; and finally that placing the funds within the SCHIP program will prove insufficient to prevent federal funding of plans that cover abortion.

Implementation Fund:        Provides $500 million to implement programs under the bill.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017;
  • Limits on Flexible Spending Arrangement contributions, effective January 1, 2018;
  • Tax on pharmaceuticals, effective January 1, 2018;
  • Medical device tax, effective January 1, 2018;
  • Health insurer tax (currently being suspended);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017;
  • Limitation on medical expenses as an itemized deduction, effective January 1, 2017;
  • Medicare tax on “high-income” individuals, effective January 1, 2023;
  • Tax on tanning services, effective September 30, 2017;
  • Net investment tax, effective January 1, 2017;
  • Limitation on deductibility of salaries to insurance industry executives, effective January 1, 2017.

These provisions are generally similar to Sections 209 through 221 of the 2015/2016 reconciliation bill. However, the bill does NOT repeal the economic substance tax, which WAS repealed in Section 222 of the 2015/2016 bill. Moreover, the bill delays repeal of the Medicare “high-income” tax (which is not indexed to inflation) for an additional six years, until 2023.

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.

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

Medicaid Expansion:           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 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—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (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 through 2023.)

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

Finally, the bill repeals provisions regarding presumptive eligibility and the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services.

Some conservatives may be concerned that the language in this bill would give expansion states a strong incentive to sign up many more individuals for Medicaid over the next seven years. Some conservatives may also be concerned that, by extending the Medicaid transition for such a long period, it will never in fact go into effect.

Disproportionate Share Hospital (DSH) Allotments:                Exempts non-expansion states from scheduled reductions in DSH payments in fiscal years 2021 through 2024, and provides an increase in DSH payments for non-expansion states in fiscal year 2020, based on a state’s Medicaid enrollment.

Retroactive 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.

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.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option.

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 five 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.

Provider Taxes:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. 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 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period.

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.

For years before fiscal year 2025, indexes the caps to medical inflation for children, expansion enrollees, and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation.

Includes provisions in the House bill regarding “required expenditures by certain political subdivisions.” Some conservatives may question the need to retain a parochial New York-related provision into the bill.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 2% for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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 that the use of the past several years as the “base period” for the per capita caps, benefits 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.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

Permits states to roll over block grant payments from year to year, provided that they comply with maintenance of effort requirements. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives.

Medicaid Waivers:  Permits states to extend Medicaid managed care waivers (those approved prior to January 1, 2017, and renewed at least once) in perpetuity through a state plan amendment, with an expedited/guaranteed approval process by CMS. Requires HHS to adopt processes “encouraging States to adopt or extend waivers” regarding home and community-based services, if those waivers would improve patient access.

Coordination with States:               After January 1, 2018, prohibits CMS from finalizing any Medicaid rule unless CMS and HHS 1) provide an ongoing regular process for soliciting comments from state Medicaid agencies and Medicaid directors; 2) solicit oral and written comments in advance of any proposed rule on Medicaid; and 3) respond to said comments in the preamble of the proposed rule.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018.

Small Business Health Plans:             Amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow for creation of small business health plans. Some may question whether or not this provision will meet the “Byrd rule” test for inclusion on a budget reconciliation measure.

Title II

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.

Opioid Funding:       Appropriates $2 billion for Fiscal Year 2018 for the HHS Secretary to distribute “grants to states to support substance use disorder treatment and recovery support services.”

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” above). Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill.

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, 2019, 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.

Medical Loss Ratios:            Permits states to determine their own medical loss ratios, beginning for plan years on or after January 1, 2019.

State Innovation Waivers:              Amends Section 1332 of Obamacare regarding state innovation waivers. Eliminates the requirement that states codify their waivers in state law, by allowing a Governor or State Insurance Commissioner to provide authority for said waivers. Appropriates $2 billion for Fiscal Years 2017 through 2019 to allow states to submit waiver applications, and allows states to use the long-term stability fund to carry out the plan. Allows for an expedited approval process “if the Secretary determines that such expedited process is necessary to respond to an urgent or emergency situation with respect to health insurance coverage within a State.”

Requires the HHS Secretary to approve all waivers, unless they will increase the federal budget deficit—a significant change from the Obamacare parameters, which many conservatives viewed as unduly restrictive. (For more background on Section 1332 waivers, see this article.)

Provides for a standard eight-year waiver (unless a state requests a shorter period), with automatic renewals upon application by the state, and may not be cancelled by the Secretary before the expiration of the eight-year period.

Provides that Section 1332 waivers approved prior to enactment shall be governed under the “old” (i.e., Obamacare) parameters, that waiver applications submitted after enactment shall be governed under the “new” parameters, and that states with pending (but not yet approved) applications at the time of enactment can choose to have their waivers governed under the “old” or the “new” parameters.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. 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. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on nearly $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020.

A PDF version of this document can be found at the Texas Public Policy Foundation website.

Are Senate Republicans Going Soft on Obamacare’s Taxpayer Funding of Abortions?

Senate Republican leadership continue to draft their “repeal-and-replace” health care bill in secret, but it sure looks like staff are preparing for the bill to endorse Obamacare’s funding of plans that cover abortion, by re-characterizing—and mischaracterizing—how current law treats the procedure. While text is not yet publicly available and will not be until Thursday at the earliest, here’s how anonymous sources described the “new” insurance subsidies to the Wall Street Journal:

Tax credits are likely to be structured in ways similar to the [Obamacare] subsidies as a way to preserve restrictions on abortion funding, according to Senate GOP aides. Provisions restricting the use of the House bill’s tax credits to pay for abortion hit procedural hurdles in the Senate.

The [Obamacare] subsidies, which are advance tax credits paid to insurance companies to lower the cost of health-insurance premiums, currently can’t be used to cover the cost of abortions.

The problem is, though, that Obamacare does have “taxpayer-funded abortions.” And that’s not what I said—that’s what Senate Majority Leader Mitch McConnell has said. Here’s his speech on March 17, 2010, as the House was preparing to vote on Obamacare (all emphasis added):

Americans woke up yesterday thinking they had seen everything in this debate already. Then they heard the latest….They heard that Democrats over in the House want to approve the Senate bill without actually voting on it. These Democrats want to approve a bill that rewrites one-sixth of the economy, forces taxpayers to pay for abortions, raises taxes in the middle of a recession, and slashes Medicare for seniors, without leaving their fingerprints on it.

Here’s McConnell the next week, the day after House Democrats voted for Obamacare and one day before it was signed into law: “Here is what the Democrats voted for last night: a vast expansion of the entitlement state that we cannot afford, massive cuts to Medicare, higher taxes, higher health care costs, worse care, taxpayer-funded abortions.”

Don’t consider McConnell a reliable source? The current vice president, Mike Pence, speaking in March 2010 during debate on the reconciliation bill intended to “fix” parts of Obamacare, noted that no provision in the reconciliation bill would fix its funding of abortion:

Mr. Speaker, the bill before us tonight doesn’t fix anything. It doesn’t fix the fact that this is a government takeover of health care that’s going to mandate that every American buy health insurance whether they want it or need it or not. It doesn’t fix the fact that it includes about $600 billion in job-killing tax increases in the worst economy in 30 years. It doesn’t fix the fact this bill provides public funding for elective abortion for the first time in American history.

And then there’s former House Speaker John Boehner. During his infamous “Hell no, you can’t!” speech on the House floor as that chamber was preparing to pass Obamacare, here’s what he said about the bill (soon to become law) and abortion:

Can you go home and tell your constituents with confidence that this bill respects the sanctity of all human life and that it won’t allow for taxpayer funding of abortions for the first time in 30 years? No, you cannot.

The current majority leader, current vice president, and former House speaker are all correct, of course—or at least they were seven years ago. Obamacare provides subsidies to plans that cover abortion, a significant break from the precedent used by the federal employee health plan, and one that will see more than $700 billion in taxpayer funds in the coming decade go toward plans that could cover abortion.

To repeat, the bill text is not yet available, but if it has strict pro-life protections in it, why are Senate staff suddenly trying to claim that a bill McConnell said has “taxpayer-funded abortions” in it actually prevents funding for the procedure? Are anonymous staff trying to lay the groundwork for a massive flip-flop that will alienate the entire pro-life community? Time will tell, but for those concerned about taxpayer funding of abortion, the initial soundings do not look good.

This post was originally published at The Federalist.