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Summary of House Republicans’ Latest Obamacare “Replace” Legislation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Legislative Summary

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary of House Republicans’ (Leaked) Discussion Draft

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Good, The Bad, and the Ugly of House Republicans’ Obamacare “Replacement”

On Thursday, prior to lawmakers returning home for the President’s Day recess, House leadership gave them a brief outline of policies likely to be included in “repeal-and-replace” legislation introduced next month. While this “full replace” strategy likely will encounter additional obstacles and delays, as I outlined last week, it’s worth analyzing the specific policies being proposed at this point, to see how they shape up.

The Good

State Innovation Grants: While sounding new to some, this concept was first introduced in 2009 in the House Republican alternative to Obamacare, and later reprised in an Obamacare alternative introduced by America Next and then-Gov. Bobby Jindal (R-LA) that I helped draft. The program provides federal incentives for states to reform their insurance markets in ways that will lower premiums, expand access, and ensure coverage for individuals with pre-existing conditions (i.e., high-risk pools).

While on the one hand it’s regrettable that the federal government essentially has to bribe states to eliminate the benefit mandates that drive up insurance premiums, the Congressional Budget Office in 2009 concluded that the Innovation Grant incentives would work, helping drive down premiums by as much as 10 percent. Staff for Rep. Dave Camp (R-MI), then ranking member of the House Ways and Means Committee, did yeoman’s work compiling this proposal back then, and House Republicans are smart to revive the concept.

Health Savings Accounts (HSAs): In recent years, health savings accounts have become a popular and effective way to reduce health care costs. In addition to making other minor reforms, the Republican plan would roughly double HSA contribution limits. This change would allow individuals—particularly those just establishing HSAs—to save more for medical expenses, while not sparking the over-consumption that an unlimited HSA might incentivize.

Medicaid: With respect to Obamacare’s expansion of Medicaid to the able-bodied, the House document says expansion states “could continue to receive enhanced federal payments for currently enrolled beneficiaries for a limited period of time” (emphasis mine). This language would effectively adopt my earlier proposal of freezing enrollment in the Medicaid expansion—perhaps the most effective way to unwind the Obamacare entitlement. Unfortunately, other changes (described below) might have the opposite effect.

The Bad (or Questionable)

More Obamacare? In discussing the transition period between Obamacare and the new regime they seek to establish, the House document states “the Obamacare subsidies are adjusted slightly [sic] to provide additional assistance for younger Americans and reduce the over-subsidization older Americans are receiving.”

This language could mean one of two things: Either 1) a change in Obamacare’s age-rating bands—which currently prohibit insurers from charging older Americans more than three times what younger Americans pay—to allow greater variability and flexibility for insurers; or 2) some change in the subsidy regime that would have the same effects as 1).

Regardless, it seems questionable whether the answer to Obamacare’s problems lies in either more spending or another federal regulation that would only slightly ease the current micromanagement of health insurers. The focus should remain on repealing Obamacare, not fixing Obamacare.

Medicaid: At minimum, the House paper leaves more questions than it answers here, providing few specifics on the formula for a reformed Medicaid program (either block grants or per capita caps) in the future. In last year’s Better Way plan, House leadership proposed creating a “base year” for a reformed program of 2016, but that specific policy point did not appear in last week’s document.

Since release of the Better Way plan last year, new data from actuarial reports on Medicaid have shown how states that expanded Medicaid have “gamed the system” to increase their federal funding. Specifically, participants in the Medicaid expansion have averaged 14 percent higher costs than non-expansion enrollees—exactly the opposite of the actuary’s projections prior to the law’s implementation. That’s because states have used the prospect of the up to 100 percent federal match for expansion populations—so-called “free money” from Washington—to pay higher physician reimbursements.

Any reformed Medicaid formula must not disadvantage states that declined Obamacare dollars to expand the program to the able-bodied. However, because spending was higher for expansion enrollees than for non-expansion enrollees last year, using 2016 as the “base year” for Medicaid reform would do just that. Congressional staff are aware of the updated data showing how Medicaid expansion states have abused the Obamacare reimbursement formulae. But it will require both careful planning and a public vetting of the details to determine whether the funding formulae for Medicaid reform will perpetuate the current inequities.

Health Savings Accounts: While increasing contribution limits will increase HSA take-up, one other change should take precedence: Allowing HSA funds to be used to pay for insurance premiums, which is currently prohibited in most cases (except for COBRA continuation coverage, during periods of unemployment, and other limited circumstances). Allowing account funds to pay for premiums would represent a quantum leap forward in consumer-driven health care, by creating a defined-contribution model: Small businesses that cannot afford to purchase coverage for their workers can make predictable HSA contributions, which employees can then use to pay for health expenses, or to fund their own health insurance.

It is possible that the budgetary cost of ending the restrictions on premium payments prompted leadership staff to work instead on increasing the contribution limits. But the former should come before the latter, for multiple reasons: Allowing people to use account funds to pay premiums will create greater political movement to increase the contribution limits, while increasing the contribution limits now will make ending the premium restrictions more costly later. Both are positive reforms, but for multiple strategic reasons, ending the premium payment restrictions should take precedence over increasing the contribution limits.

The Ugly

New Entitlement (Funded by New Taxes?): The linchpin of the House plan lies in its system of advanceable, refundable tax credits—a new program of spending that would see the federal government writing “refund” checks to individuals with no income tax liability. However, the proposal likely will not receive a favorable score from the Congressional Budget Office (CBO) about the number of individuals covered by health insurance, at least compared to Obamacare.

That said, the new government spending will impose a fiscal cost. While Republicans did not mention a “pay-for” in their policy brief, press reports suggest the party may raise taxes to fund the new spending. Specifically, House Republicans are looking at capping the current exclusion for employer-provided health coverage, a policy included in their Better Way plan last year.

Most economists agree that the tax treatment of employer-provided health insurance encourages over-consumption of health insurance and health care. However, there are better ways to reform the tax treatment of health coverage—and provide parity between employer-sponsored and individually purchased insurance—without raising taxes overall. The American people do not support repealing Obamacare’s revenue increases only to replace them with other tax hikes.

Therein lies the great disappointment of the House proposal. While in 2008 Barack Obama campaigned for his plan by saying it would reduce health-care costs, he governed with a singular focus on increasing the number of individuals with health insurance, and in so doing raised costs and premiums for millions of Americans. Going down the same failed Obamacare approach of more taxes and more spending will not lower health costs. That, and not repealing and replacing Obamacare’s taxes and spending, should be House Republicans’ ultimate objective.

This post was originally published at The Federalist.

Three Concerns with Rand Paul’s Obamacare Replacement Act

On Wednesday, Politico reported that the House Freedom Caucus, an influential group of House conservatives, was considering whether to give its official endorsement to Sen. Rand Paul’s Obamacare Replacement Act (S. 222). The report indicated that word from the Freedom Caucus about an endorsement could come as soon as next week.

To this conservative health policy analyst, this development raises some serious concerns. Although not as objectionable as the Collins-Cassidy Patient Freedom Act, Paul’s legislation contains several features that, if widely embraced by conservatives, could lead to strategic and policy missteps going forward.

1. Doesn’t Repeal Obamacare

While the Paul bill provides an alternative vision for health care, it does not repeal most of Obamacare. The bill does repeal virtually all of the law’s major mandates: the individual and employer mandates to obtain insurance, the guaranteed issue and community rating regulations, the essential health benefits, and other various insurance mandates that have raised premiums.

However, the bill does not repeal either of Obamacare’s new entitlements—the subsidies for exchange health insurance, and the massive Medicaid expansion to the able-bodied—leaving in place nearly $2 trillion in spending over the coming decade. Likewise, the bill does not repeal any of the Obamacare taxes used to fund that spending, except those associated with the individual and employer mandates.

Paul’s office may view the bill as a successor and complement to the reconciliation bill that Congress passed, but President Obama vetoed, in 2016. That bill would have repealed the law’s entitlements (after two years), and its tax increases (effective immediately), but not its regulations. Paul’s office might argue that his bill repeals the critical portions of Obamacare not included in last year’s reconciliation bill—the major insurance regulations—while providing a replacement vision to go beyond repeal.

But that position assumes last year’s reconciliation bill will be the starting point for this year’s discussion—and it may not be. Politico reported Tuesday evening that Republicans were having difficulty figuring out how to square Medicaid reform with Obamacare’s massive Medicaid expansion. Likewise, some Republicans have discussed not repealing the law’s tax hikes. On these controversies, the Paul bill, by omitting any provisions relating to the entitlement expansions and tax increases, contains a deafening silence.

Paul’s bill repealed the individual and employer mandates, even though last year’s reconciliation measure also effectively repealed them. Why didn’t his bill repeal all the other tax hikes and spending increases as well? Is it because Paul, whose home state expanded Medicaid to the able-bodied under Obamacare, wants to avoid taking a position on whether to keep that expansion?

2. Tax Credit Slippery Slope

The Paul bill does provide tax credits for health coverage, but largely of the non-refundable kind, an arcane but important difference. Paul’s bill provides a $5,000 tax credit to individuals who contribute to Health Savings Accounts (HSAs), but only to the extent such individuals have income tax liability. The Paul bill does include a refundable tax credit for health insurance premiums, but the refundable portion of the credit only applies up to the limit of an individual’s payroll taxes paid.

Many Republican health reform plans would offer refundable tax credits to individuals in excess of tax liabilities, which represents pure welfare/outlay spending—the government issuing “refunds” to people with no net income or payroll tax obligations. By contrast, the Paul bill would ensure that credits only apply to individuals with actual payroll and income tax obligations.

However, this critically important distinction will likely be lost on many members of the press—and perhaps members of the Freedom Caucus themselves. “House Freedom Caucus Endorses Tax Credits” will blare the headlines. Having endorsed tax credits once, the pressure on Freedom Caucus members to then go further and endorse the House leadership plan for refundable tax credits will be immense. Put simply, the slippery slope to endorsing a major spending package in the form of refundable tax credits starts with the Paul bill.

3. Budget-Busting Health Care Giveaways

While the Paul bill includes no outlay spending—its incentives all come via tax cuts—those incentives are numerous, and costly. The legislation would supplement the current, uncapped exclusion on employer-provided health insurance with a new, uncapped deduction for individual-provided health insurance. It would eliminate contribution limits to HSAs, and introduce a new federal subsidy (via the tax credits) of up to $5,000 for HSA contributions.

Apart from the fiscal implications of the tax incentives, are these tax cuts smart tax cuts? Evidence suggests they may not be. Economists on all sides of the political spectrum believe that the current uncapped exclusion for employer-provided health insurance encourages over-consumption of health insurance, and thus health care. Rather than reining in this tax incentive as one element of pro-growth tax reform, Paul’s bill goes in the other direction, creating two new uncapped tax incentives for health insurance.

As a medical doctor, Paul has shown little inclination to rein in health care spending. He voted for budget-busting Medicare physician payment legislation in 2015 that raised the deficit by more than $140 billion in its first decade alone, while failing to solve the long-term problems it purported to address. He has also previously proposed budgets with minimal reductions in Medicare spending, although he has introduced more substantive reforms in recent years.

But with health care already consuming nearly one-fifth of our economy, and our national debt approaching $20 trillion, does the solution to these problems really lie in creating new, uncapped incentives for tax-free spending on health care and health insurance?

Therein lies but one of the Paul bill’s problems. While ostensibly promoting market-oriented solutions, the legislation contains several strategic trip-wires that could contaminate any attempt to repeal Obamacare, or enact a conservative alternative. Members of Congress should tread cautiously.

This post was originally published at The Federalist.

Simpson-Bowles’ Revised Recommendations on Health Care

Wanted to follow up my summary from earlier this week with a preliminary analysis of the co-chairs’ revised plan.  In general, when compared to the first draft, the revised plan adds the CLASS Act to the list of entitlement programs that must be reformed or repealed, strikes caps on non-economic damages (while retaining other liability reforms), and includes sundry other savings proposals to finance CLASS Act repeal and lower estimated savings from liability reform.  The plan also goes further in reforming – and ultimately repealing – the employee tax exclusion for employer-provided health insurance, echoing some of the proposals made by the Rivlin-Domenici Bipartisan Policy Center plan.  Details of the plan include:

Sustainable Growth Rate:  The plan largely retains the earlier draft’s proposals to pay for a long-term fix to the Medicare physician reimbursement formula though savings elsewhere within Medicare – coupled with the development of a new formula that “encourages care coordination across multiple providers…and pays doctors based on quality instead of quantity of services.”  The final plan provides a bit more specific detail than the draft, proposing a freeze in physician payment levels through 2013 and a one percent cut in 2014.  The final plan also heavily criticizes the SGR mechanism, noting that current budget projections rely on “large phantom savings from a scheduled 23 percent cut in Medicare physician payments that will never occur.”

CLASS Act:  This program – which was not addressed at all in the draft document – is criticized in the report as fiscally dubious: “it is viewed by many experts as financially unsound,” because of the significant adverse selection risks inherent in a voluntary long-term care program.  The report’s conclusion: “Absent reform, the program is therefore likely to require large general revenue transfers or else collapse under its own weight.  [Therefore the] Commission advises the CLASS Act be reformed in a way that makes it credibly sustainable over the long term.  To the extent this is not possible, we advise it be repealed.”  Additional savings to fund the repeal (because the CLASS Act will collect premiums that technically reduce the deficit in its first several years) are suggested in the final report, as outlined below.

Liability Reform:  The final report does recommend reforms on 1) collateral source damages (meaning outside benefits like worker’s comp should be considered when awarding damages), 2) a uniform statute of limitations, 3) joint-and-several liability (defendants only responsible for the portion of damages directly correlating to their share of responsibility), 4) specialized health courts, and 5) safe harbors for providers following best practices.  The plan however does NOT propose a cap on non-economic damages, instead recommending “that Congress consider this approach and evaluate its impact.”  Because the damage caps were removed from the final plan, the estimated deficit reduction under this proposal falls to $17 billion, as opposed to more than $60 billion under the draft proposal.

Employee Tax Exclusion for Employer-Provided Health Insurance:  The tax section of the final plan goes further than the draft, proposing to cap the value of the exclusion at the 75th percentile of premium levels, beginning in 2014.  The cap would NOT be adjusted for inflation after 2018, and the newly capped exclusion would be phased out (the specific details of which are unclear) by 2038.  In exchange, the value of the “Cadillac tax” included in the health care law for years beginning in 2018 would be reduced from 40% to 12%; it is unclear how the “Cadillac” tax would interact with the newly capped exclusion under the proposal.  As part of this tax reform proposal, the existing brackets would be rolled into three brackets, of 12%, 22%, and 28%.  Also of note: The revised plan increases the amount of net revenues devoted to deficit reduction (i.e., net tax increases) from $80 billion per year in the draft plan to $80 billion in 2015 and $180 billion in 2020.

Other Savings Proposals:  To fund SGR reform and CLASS Act repeal, the plan includes a series of savings proposals, many of which appeared in the earlier draft plan (all scores cited are total savings through 2020):

  • Increase in Medicare anti-fraud funding and authority: Not included in the initial draft; saves $9 billion.
  • Reform to Medicare cost-sharing, along with restrictions to supplemental insurance: The final plan takes the initial proposal (a version of CBO’s Budget Option 83) and extends proposed restrictions on first-dollar cost-sharing in Medigap plans to ALL forms of Medicare supplemental coverage, including Tricare for Life, FEHB retirees, and retirees in private employer-sponsored coverage.  The modification saves an additional $38 billion, for a total of $148 billion over ten years.
  • Part D drug rebates:  Similar to the draft plan, the revised version would extend Medicaid pharmaceutical rebates to Part D beneficiaries; however, for reasons that are unclear, the revised plan predicts smaller savings ($49 billion compared to $59 billion in the draft version).
  • Graduate Medical Education:  Reduces both graduate medical education (GME) and indirect medical education (IME) payments to hospitals, saving a total of $60 billion (compared to $54 billion in the draft plan).
  • Medicare bad debt:  The final plan would phase out over time Medicare payments to hospitals for unpaid cost-sharing owed by beneficiaries, saving $23 billion (compared to $15 billion in the draft plan).
  • Home health:  The plan accelerates savings proposals included in the health care law by beginning productivity adjustments for home health agencies in 2013, and phases in rebasing of the home health prospective payment system by 2015 (instead of 2017 under current law), saving $9 billion through 2020. (The draft plan proposed accelerating Medicare Advantage and DSH cuts in addition to home health reductions, but the final plan omitted MA and DSH provisions.)
  • Medicaid provider taxes:  The plan criticizes as a “tax gimmick” states that utilize provider taxes to receive additional Medicaid federal matching funds, and proposes “restricting and eventually eliminating this practice,” saving $44 billion (down from $49 billion in the draft).
  • Medicaid managed care:  Proposes “giving Medicaid full responsibility for providing health coverage for dual eligibles and requiring that they be enrolled in managed care,” saving $12 billion (compared to $11 billion in the draft).
  • Medicaid administrative costs:  Eliminates federal funding of Medicaid administrative costs “that are duplicative of funds originally included in the Temporary Assistance for Needy Families (TANF) block grants,” saving $2 billion (down from $17 billion in the draft).
  • FEHB premium support:  Rather than increasing cost-sharing for federal retirees, as the draft proposed, the final plan “recommends transforming the Federal Employees Health Benefits program into a defined contribution premium support plan that offers federal employees a fixed subsidy that grows by no more than GDP plus one percent each year.”  This proposal mirrors the premium support systems that the Rivlin-Ryan and Rivlin-Domenici plans suggested could be applied to Medicare – and the final Simpson-Bowles proposal suggests using the FEHB as a test model for premium support, including a “rigorous external review process to study the outcomes,” with an eye toward a possible premium support program for Medicare.

Other Short-Term Policies:  The final plan also includes a few proposals that do not have a cost/deficit impact.  First, the plan proposes extending the reach of the Independent Payment Advisory Board (IPAB) created in the health care law to all providers, removing the temporary exemptions for some providers included in the law.  The plan also encourages the acceleration of state Medicaid waivers and payment reform options within Medicare, including accountable care organizations.

Long-Term Savings:  The final proposal largely tracks the earlier draft plan’s concept of adopting a cap for all federal health care spending (including Exchange subsidies, Medicare, Medicaid, SCHIP, and the employee health insurance tax exclusion) equal to GDP growth plus one percent from 2020 forward.  The plan also suggests – but does not officially recommend – additional options should spending exceed the targets, including premium support proposals for Medicare, “giving CMS authority to be a more active purchaser of health care services using coverage and reimbursement policy to encourage higher value services,” extending IPAB’s scope beyond Medicare, converting the federal share of Medicaid into a block grant, raising the Medicare retirement age, a “robust” government-run health plan in Exchanges, or an all-payer system for health care.

Health Care Law:  Finally, an interesting passage in the report notes the divergence of opinion among commission members about the new health care law:

“Some Commission members believe that the reforms enacted as part of ACA will “bend the curve” of health spending and control long-term cost growth.  Other Commission members believe that the coverage expansions in the bill will fuel more rapid spending growth and that the Medicare savings are not sustainable.  The Commission as a whole does not take a position on which view is correct, but we agree that Congress and the President must be vigilant in keeping health care spending under control and should take further actions if the growth in spending continues at current rates.”

A Review of Deficit Reduction Plans

This Wednesday’s deadline for the fiscal commission to report a deficit reduction plan provides an opportunity to examine the health care components of the three proposals that have been released thus far:

  1. The Simpson-Bowles plan, named for the co-chairs of the fiscal commission, who released their own draft recommendations just after the midterm election;
  2. The Rivlin-Domenici plan, named for former CBO Director Alice Rivlin and former Senate Budget Committee Chairman Pete Domenici (R-NM), who released their own proposal as chairs of an independent commission operating under the aegis of the Bipartisan Policy Center; and
  3. The Rivlin-Ryan plan, which Alice Rivlin and House Budget Committee Ranking Member Paul Ryan released as an alternative to the Simpson-Bowles proposal, as both Dr. Rivlin and Rep. Ryan also sit on the fiscal commission.

CBO has conducted a preliminary analysis of the Rivlin-Ryan plan (the above link includes both the plan’s summary and score), and the Simpson-Bowles plan incorporates CBO scoring estimates where available.  However, it is unclear where and how the Rilvin-Domenici plan received the scores cited for its proposals.  The timing of the plans also varies; the Rivlin-Domenici plan postpones implementation of its plan until 2012, when the authors believe the economy will be better able to sustain a major deficit reduction effort.

The following analysis examines the similarities and differences of the three plans’ health care components in both the short term and the long term.  Keep in mind however that these are DRAFT proposals, which may a) change and b) be missing significant details affecting their impact.  Note also that the summary below is not intended to serve as an endorsement or repudiation of the proposals, either in general terms or in their specifics.

Short-Term Savings

Liability Reform:  All three plans propose liability reforms, including a cap on non-economic damages.  The Rivlin-Ryan and Simpson-Bowles plans both rely on specifications outlined in CBO’s October 2009 letter to Sen. Hatch; both presume about $60 billion in savings from this approach.  The Rivlin-Domenici plan is less clear on its specifics, but discusses “a strong financial incentive to states, such as avoiding a cut in their Medicaid matching rate, to enact caps on non-economic and punitive damages.”  Rivlin-Domenici also proposes grants to states to pilot new approaches, such as health courts; overall, the plan estimates $48 billion in savings from 2012 through 2020.

Prescription Drug Rebates:  Both the Simpson-Bowles and Rivlin-Domenici plans would apply Medicaid prescription drug rebates to the Medicare Part D program.  The Simpson-Bowles plan estimates such a change would save $59 billion from 2011 through 2020, whereas the Rivlin-Domenici plan estimates this change would save $100 billion from 2012 through 2018.  The disparity in the projected scores is unclear, as both imply they would extend the rebates to all single-source drugs (i.e., those without a generic competitor) in the Part D marketplace.  The Rivlin-Ryan plan has no similar provision.

Changes to Medicare Benefit:  All three plans propose to re-structure the Medicare benefit to provide a unified deductible for Parts A and B, along with a catastrophic cap on beneficiary cost-sharing.  The Rivlin-Ryan and Simspon-Bowles plans are largely similar, and echo an earlier estimate made in CBO’s December 2008 Budget Options document (Option 83), which provided for a unified deductible for Parts A and B combined, a catastrophic cap on beneficiary cost-sharing, and new limits on first-dollar coverage by Medigap supplemental insurance (which many economists believe encourages patients to over-consume care).  Conversely, the Rivlin-Domenici proposal provides fewer specifics, does not mention a statutory restriction on Medigap first-dollar coverage, and generates smaller savings (an estimated $14 billion from 2012 through 2018, as opposed to more than $100 billion from the Rivlin-Ryan and Simpson-Bowles proposals).

Medicare Premiums:  The Rivlin-Domenici plan would increase the beneficiary share of Medicare Part B premiums from 25 percent to 35 percent, phased in over a five-year period, raising $123 billion from 2012 through 2018. (When Medicare was first established, seniors paid 50 percent of the cost of Part B program benefits; that percentage was later reduced, and has been at 25 percent since 1997.)  The Rivlin-Ryan and Simpson-Bowles plans have no similar provision.

“Doc Fix:  The Simpson-Bowles plan uses the changes discussed above (i.e., liability reform, Part D rebates, and Medicare cost-sharing), along with an additional change in Medicare physician reimbursement, to pay for a permanent “doc fix” to the sustainable growth rate (SGR) formula.  The Simpson-Bowles plan would generate the final $24 billion in savings necessary to finance a permanent “doc fix” by establishing a new value-based reimbursement system for physician reimbursement, beginning in 2015.

The introduction to the Rivlin-Domenici plan notes that it “accommodates a permanent fix” to the SGR, but the plan itself does not include specifics on how this would be achieved, nor what formula would replace the current SGR mechanism.  Likewise, the Rivlin-Ryan plan does not directly address the SGR; however, the long-term restructuring in Medicare it proposes means the issue of Medicare physician reimbursement would become a moot point over several decades.  (See below for additional details.)

Other Provisions:  The Rivlin-Domenici plan would impose an excise tax of one cent per ounce on sugar-sweetened beverages; the tax would apply beginning in 2012 and would be indexed to inflation after 2018. (This proposal was included in Option 106 of CBO’s December 2008 Budget Options paper.)  The plan estimates this option would raise $156 billion from 2012 through 2020.

The Rivlin-Domenici plan also proposes bundling diagnosis related group (DRG) payments to include post-acute care services in a way that allows hospitals to retain 20 percent of the projected savings, with the federal government recapturing 80 percent of the savings for a total deficit reduction of $5 billion from 2012 through 2018.  Finally, the Rivlin-Domenici plan proposes $5 billion in savings from 2012 through 2018 by removing barriers to enroll low-income dual eligible beneficiaries in managed care programs.

The Simpson-Bowles plan includes a laundry list of possible short-term savings (see Slide 35 of the plan for illustrative savings proposals) in addition to the savings provisions outlined above that would fund a long-term “doc fix.”  Most of the additional short-term savings proposed would come from additional reimbursement reductions (e.g., an acceleration of the DSH and home health reductions in the health care law, and reductions in spending on graduate medical education), or from proposals to increase cost-sharing (e.g., higher Medicaid co-pays, higher cost-sharing for retirees in Tricare for Life and FEHB).

Long-Term Restructuring

Employee Exclusion for Group Health Insurance:  In its discussion of tax reform, the Simpson-Bowles plan raises the possibility of capping or eliminating the current employee exclusion for employer-provided health insurance.  (The Associated Press wrote about this issue over the weekend.)  One possible option would eliminate the exclusion as part of a plan to lower income tax rates to three brackets of 8%, 14%, and 23%; however, this proposal presumes a net $80 billion per year in increased revenue per year to reduce the deficit.  The plan invokes as another option a proposal by Sens. Gregg and Wyden to cap the exclusion at the value of the FEHBP Blue Cross standard option plan, which would allow for three income tax rates of 15%, 25%, and 35%, along with a near-tripling of the standard deduction.  Separately, the Simpson-Bowles plan also proposes repealing the payroll tax exclusion for employer-provided health insurance as one potential option to extend Social Security’s solvency.

The Rivlin-Domenici plan would cap the exclusion beginning in 2018, at the same level at which the “Cadillac tax” on high-cost plans is scheduled to take effect in that year.  However, the proposal would go further than the “Cadillac tax” (which would be repealed) by phasing out the income and payroll tax exclusion entirely between 2018 and 2028.  (This proposal would also prohibit new tax deductible contributions to Health Savings Accounts, on the grounds that health care spending would no longer receive a tax preference under any form.)  Notably, the Rivlin-Domenici plan accepts that some employers might stop offering coverage from this change to the tax code, and projects some higher federal spending on Exchange insurance subsidies as a result; however, if more employers drop coverage than the authors’ model predicts, the revenue gain from this provision could be entirely outweighed by the scope of new federal spending on insurance subsidies.

Although Rep. Ryan has previously issued his “Roadmap” proposal that would repeal the employee exclusion, the Rivlin-Ryan plan does NOT address this issue.

Medicare:  The Rivlin-Domenici program would turn Medicare into a premium support program beginning in 2018.  Increases in federal spending levels would be capped at a rate equal to the average GDP growth over five years plus one percentage point.  Seniors would still be automatically enrolled in traditional (i.e., government-run) Medicare, but if spending exceeded the prescribed federal limits, seniors would pay the difference in the form of higher premiums.  Seniors could also choose plans on a Medicare Exchange (similar to today’s Medicare Advantage), with the hope that such plans “can offer beneficiaries relief from rising Medicare premiums.”

The Rivlin-Ryan proposal would turn Medicare into a voucher program beginning in 2021.  (Both the Rivlin-Domenici premium support program and the Rivlin-Ryan voucher program would convert Medicare into a defined benefit, whereby the federal contribution toward beneficiaries would be capped; the prime difference is that the premium support program would maintain traditional government-run Medicare as one option for beneficiaries to choose from with their premium dollars, whereas the Rivlin-Ryan plan would give new enrollees a choice of only private plans from which to purchase coverage.)  The amount of the voucher would increase annually at the rate of GDP growth per capita plus one percentage point – the same level as the overall cap in Medicare spending included in the health care law as part of the new IPAB.  Low-income dual eligible beneficiaries would receive an additional medical savings account contribution (to use for health expenses) in lieu of Medicaid assistance; the federal contribution to that account would also grow by GDP per capita plus one percent.

The Rivlin-Ryan plan would NOT affect seniors currently in Medicare, or those within 10 years of retirement, except for the changes in cost-sharing described in the short-term changes above.  However, for individuals under age 55, the plan would also raise the age of eligibility by two months per year, beginning in 2021, until it reached 67 by 2032.

While the Rivlin-Domenici and Rivlin-Ryan plans restructure the Medicare benefit for new enrollees to achieve long-term savings, the Simpson-Bowles plan largely relies on the health care law’s new Independent Payment Advisory Board (IPAB) to set spending targets and propose additional savings.  The Simpson-Bowles plan suggests strengthening the IPAB’s spending targets, extending the IPAB’s reach to health insurance plans in the Exchange, and allowing the IPAB to recommend changes to benefit design and cost-sharing.  The plan also suggests setting a global budget for all federal health spending (i.e., Medicare, Medicaid, exchange subsidies, etc.), and capping the growth of this global budget at GDP plus one percent – the same level that IPAB capped spending in Medicare.  If costs exceed the target, additional steps could be taken to reduce spending, including an increase in premiums and cost-sharing or a premium support option for Medicare.  The plan also suggests overhauling the fee-for-service reimbursement system, or establishing an all-payer model of reimbursement (in which all insurance carriers pay providers the same rate) if spending targets are not met.

Medicaid:  The Rivlin-Domenici plan suggests that in future, Medicaid’s excess cost growth should be reduced by one percentage point annually.  The plan implies some type of negotiation between states and the federal government over which services in the existing Medicaid program that the state should assume and fund and which services the federal government should assume and fund.  While specifics remain sparse, the overriding principle involves de-linking Medicaid financing from the open-ended federal matching relationship as a way to reduce future cost growth by one percentage point per year.

The Rivlin-Ryan plan converts the existing Medicaid program into a block grant to the states, beginning in 2013.  The size of the federal block grant would increase to reflect growth in the Medicaid population, as well as growth in GDP plus one percent.  The costs of the new Medicaid expansion would be covered according to current law through 2020; in 2021 and succeeding years, the Medicaid expansion would be rolled into the block grant.

The Simpson-Bowles plan includes conversion of Medicaid into a block grant as one option to generate additional savings; however, it does not explicitly advocate this course of action.

CLASS Act:  The Rivlin-Ryan plan would repeal the CLASS Act.  The Rivlin-Domenici and Simpson-Bowles plans do not discuss any changes to this program.  This is the ONLY provision in the three deficit reduction plans that proposes elimination of any part of the health care law’s new entitlements.