Tag Archives: Individual mandate

Summary of House Republicans’ Latest Obamacare “Replace” Legislation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Legislative Summary

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary of House Republicans’ (Leaked) Discussion Draft

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Obamacare Repeal Will Destroy the Republican Agenda Unless Congress Gets Smart

With Congress heading towards its first recess at week’s end, it’s time to summarize where things stand on one of Republicans’ top objectives—repealing Obamacare—and might be headed next. While those who want further details should read the entire article, the lengthy analysis below makes three main points:

  1. Congress faces far too many logistical obstacles—the mechanics of drafting bill text, procedural challenges in the Senate, budgetary scoring concerns, and political and policy disagreements—to pass a comprehensive “repeal-and-replace” bill by late March, or indeed any time before summer;
  2. Congressional leaders and President Trump face numerous pressures—both to enact other key items on their agenda, and from conservatives anxious to repeal Obamacare immediately, if not sooner—that will prevent them from spending the entire spring and summer focused primarily on Obamacare; therefore
  3. Congressional leaders will need to pare back their aspirations for a comprehensive “repeal-and-replace” bill, slim down the legislation to include repeal and any pieces of “replace” that can pass easily and swiftly with broad Republican support, and work to enact other elements of their “replace” agenda in subsequent legislation.

What Has Happened In the Last Month

Before the New Year, congressional leaders had endorsed a strategy of repealing Obamacare via special budget reconciliation procedures, using legislation that passed Congress (but President Obama vetoed) in late 2015 and early 2016 as a model. Subsequent efforts would focus on crafting an alternative to the law, whose entitlements would sunset in two or three years, to allow adequate time for a transition.

However, some observers questioned this “repeal-and-delay” strategy, arguing that insurance markets would quickly collapse without a clear vision from Congress for what will follow Obamacare. President Trump seemed to ratify these concerns when he called for “simultaneous,” or near-simultaneous, “repeal-and-replace.”

Due to Trump’s intervention and angst amongst some Republicans toward moving forward with a repeal-first approach, congressional leaders pivoted. Various press reports in the last week suggest House committees are drafting a robust “replace” package that will accompany repeal legislation. This “repeal-and-replace” bill will use the special reconciliation procedures that allow budget-related provisions to pass with a 51-vote majority (instead of the usual 60 votes needed to break a filibuster) in the Senate, with non-budgetary provisions being considered in subsequent pieces of legislation.

The press reports and strategic leaks from House offices attempt to show progress towards a quick markup—a March 1 markup date was floated in one article—and enactment before Congress next recesses, in late March. But these optimistic stories cannot hide two fundamental truths: 1) Enacting comprehensive “replace” legislation along with repeal will take far longer than anyone in Congress has yet admitted; and 2) Leadership does not have the time—due both to other must-pass legislation, and political pressure from the Right to pass repeal quickly—necessary to fashion a comprehensive “repeal-and-replace” bill.

He may not realize it at present, but in going down the simultaneous “repeal-and-replace” pathway, President Trump made a yuuuuge bet: holding the rest of legislative agenda captive to the rapid enactment of such legislation. Once it becomes more obvious that “repeal-and-replace” will not happen on its current timetable—and that other key elements of the Republican agenda are in jeopardy as a result—it seems likely that Speaker Ryan, President Trump, or both will scale back the “replace” elements of the “repeal-and-replace” bill, to allow it to pass more quickly and easily.

Adding Layers of Complexity

A Politico story last Tuesday claiming that an Obamacare alternative was coalescing in the House listed four elements of “replace” incorporated into a repeal bill: 1) incentives for health savings accounts (HSAs); 2) funding for high-risk pools for individuals with pre-existing conditions; 3) a refundable tax credit for the purchase of health insurance; and 4) comprehensive Medicaid reform in the form of per capita caps on beneficiary spending.

But every element added to a piece of legislation makes it that much more complex. Republicans have an easy template to use for repealing Obamacare: the reconciliation bill that already passed Congress. That bill has been drafted, passed procedural muster in the Senate, and received both a favorable budgetary score and enough votes for enactment.

Conversely, crafting “replace” policies will require more time, conversations with legislative counsel (the office in Congress that actually drafts legislation), discussions about policy options for implementation, and so forth.

House Republicans did engage in some of these conversations when compiling their Better Way agenda last spring. But that plan ultimately did not get translated into legislative language, and the plan itself left important details out (in some cases deliberately).

Moreover, because Republicans want to use special budget reconciliation procedures to enact this “repeal-and-replace” bill, they must consult heavily with the Senate parliamentarian, who advises the Senate on whether legislative provisions are primarily budgetary in nature, and thus can be included in a reconciliation bill. Reports last week suggested some of those discussions are underway. But if the Senate parliamentarian raises objections to the way House Republicans have drafted certain sections of their legislation, House staff may have to start from scratch and re-draft the legislative language to comply with the Senate rules.

It seems plausible that House Republicans could fairly easily incorporate some elements of their “replace” agenda—for instance, HSA incentives or funding for high-risk pools—into a repeal reconciliation bill. There are several “off-the-shelf” (i.e., previously drafted) versions of these policy options, and the budgetary effects of these changes are relatively straight-forward (i.e., few interactions with other policy elements).

But on tax credits and Medicaid reform, House Republicans face another major logistical obstacle: Analysis by the Congressional Budget Office (CBO). Longtime observers and congressional historians may recall that CBO was where Hillarycare went to die back in 1994. While Republicans are not necessarily doomed to face a similar fate two decades later, the idea that budget analysts will give “repeal-and-replace” a clean bill of fiscal health within a fortnight—or even a month—defies both credulity and history.

Running the CBO Gauntlet

As someone who worked on Capitol Hill during the Obamacare debate eight years ago, I remember the effect when CBO released one of its first scores of Democrats’ legislation. As the New York Times reported on June 17, 2009, in a piece entitled “Senate Faces Major Setback on Health Care Bill”:

The Senate Finance Committee is delaying its first public drafting session on major health care legislation until after the July Fourth recess, a lengthy setback but one that even Democrats say is critically needed to let them work on reducing the costs of the bill…. The drafting session had been scheduled for Tuesday. But new cost estimates by the Congressional Budget Office on health care proposals came in much more expensive than expected, emboldening critics and alarming Democrats.

I recall well hearing from Senate staffers about the massive fiscal gap between Democrats’ spending wish list and their revenue-raising proposals. That setback forced Democrats to go back to the drawing board, and sparked the “Gang of Six” discussions among Finance Committee Republicans and Democrats that spanned the months of July and August 2009. Eventually, Democrats did enact Obamacare, but on March 23, 2010—279 days after the CBO debacle the Times chronicled.

Given the role CBO played in delivering Hillarycare a mortal blow in the 1990s, and the more than nine-month gap between the initial (horrible) CBO scores of Obamacare and that law’s enactment, House leadership’s implication that its “repeal-and-replace” legislation can move straight to passage by receiving a clean bill of health from CBO on the first go-round seems highly unrealistic.

Just like any player moving up from the minor leagues will need time to adjust to big-league pitching, so too will any legislation with as many moving parts as a comprehensive “repeal-and-replace” bill require several, and possibly significant, adjustments and tweaks to receive a CBO score Republicans find acceptable.

While House Republicans’ Better Way plan included a much less complicated and convoluted formula for providing insurance subsidies than Obamacare, they may face other difficulties in achieving a favorable CBO score, particularly regarding to the number of Americans covered under their refundable tax credit regime. These include the following.

No Mandate:  While conservatives view the lack of a requirement to purchase insurance as a feature of any Obamacare alternative, CBO has a long history of viewing a mandate’s absence as a bug—and will score legislation accordingly. In analyzing health reform issues in a December 2008 volume, CBO published an elasticity curve showing take-up of health insurance based on various levels of federal subsidies. The curve claimed that, even with a 100 percent subsidy—the federal government giving away health insurance for “free”—only about 80 percent of individuals will actually obtain coverage. In CBO’s mind, unless the government forces individuals to buy insurance, a significant percentage will not do so.

President Obama didn’t want to include a mandate in Obamacare, not least because he campaigned against it. But CBO essentially forced Democrats to include one to receive a favorable score on the number of Americans covered. If Republicans care about matching the number of individuals insured by Obamacare (some view it as more of a priority than others), the lack of a mandate will cost them on coverage numbers. Alternative mandate-like policies such as auto-enrollment may mitigate that gap, but CBO may not view them as favorably—and they come with their own detractors.

Age-Rated Subsidies: Obamacare uses income as a major factor in calculating its insurance subsidy amounts, which creates two problems. First, because subsidies decline as individuals’ income rises, Obamacare effectively discourages work. CBO has previously calculated that, largely because of these work disincentives, the law will reduce the labor supply by the equivalent of 2.5 million full-time jobs.

Second, the process of reconciling projected income to actual earnings creates administrative complexity. It poses large paperwork burdens on the Internal Revenue Service and taxpayers alike, and requires some individuals to forfeit their refunds and pay back subsidies at tax time.

House Republicans have proposed a simpler system of insurance subsidies, based solely upon age. However, because the subsidies are solely linked to age, low-income individuals receive the same subsidy as millionaires. While much more transparent and fair, this system also does not target resources to those who would need them most. To borrow an analogy, it spreads the peanut butter (i.e., insurance subsidies) more evenly, but also more thinly, over the proverbial piece of bread (i.e., Americans seeking insurance). Given CBO’s beliefs about the likelihood of individuals purchasing insurance outlined above, this change could also cost Republicans significantly in the coverage department.

Medicaid Reform: Republicans have consistently argued that providing states with additional flexibility to manage their Medicaid programs in exchange for a defined federal contribution will allow them to reduce program spending in beneficial ways. Rhode Island’s innovative global compact waiver provides an excellent example of providing better care within an overall budget on expenditures.

However, CBO analysts have publicly taken a different view. In analyzing per capita spending caps for Medicaid—the policy option House Republicans are reportedly incorporating into their alternative—last December, CBO wrote that

States would take a variety of actions to reduce a portion of the additional costs that they would face [from the caps], including restricting enrollment. For people who lose Medicaid coverage, CBO and the staff of the Joint Committee on Taxation estimate that roughly three-quarters would become uninsured.

CBO has therefore made rather clear that it will score reforms to Medicaid as increasing the number of uninsured.

Speaker Ryan may have pushed for the comprehensive “repeal-and-replace” strategy in part to appease Republican members of Congress who want to see their alternative to Obamacare provide as many Americans with insurance as current law. But it seems highly improbable that CBO will score any Republican tax credit proposal as covering as many Americans as Obamacare. It is also not outside the realm of possibility for CBO to score an alternative as covering fewer Americans than the pre-Obamacare status quo.

The first two CBO scoring issues nixed any attempt by House Republicans to include tax credits as part of their alternative to Obamacare in 2009, when I worked in House leadership. Sources tell me unfavorable scores also nixed House Republicans’ attempt to include a refundable tax credit when the party was crafting responses to a potential Supreme Court ruling striking down the law’s subsidies in 2015. It therefore ranges from likely to certain that an initial CBO score of a comprehensive “repeal-and-replace” bill will go over about as well as it did for Republicans in 2009 and 2015—with generally poor coverage figures compared to Obamacare.

In theory, Republicans could work to surmount some of these obstacles and achieve more robust coverage figures. But such efforts would require time to sort through policy options—time that Republicans don’t currently have—and money to fund insurance subsidies, even though Republicans don’t have an obvious source of funding for them.

Pay-For Problems

Over and above the purely technical problems associated with scoring a “repeal-and-replace” bill, other issues present both policy and political concerns. To wit, if Republicans include refundable tax credits in their plan, how exactly will they finance this new spending? The possibilities range from unpalatable to implausible.

  • They could try to keep some of Obamacare’s tax increases to fund their own spending. But key Republican lawmakers and key constituency groups have strongly supported repealing all of Obamacare’s tax hikes. It seems unlikely that a bill that failed to repeal all of the law’s tax increases could gather enough votes for passage.
  • They could include their own revenue-raisers after repealing all of Obamacare’s tax hikes. For instance, House Republicans could limit the value of employer-provided health coverage. But while economists of all political stripes support such efforts as one key way to reduce health costs, members of the business community would likely oppose this measure, judging from recent news stories. Unions and the middle class likely wouldn’t be keen either. Moreover, by using limits on employer-provided health coverage as a new source of revenue rather than reforming the tax treatment of health insurance in a revenue-neutral way, Republicans would repeal Obamacare’s tax increases, but replace them with other tax increases—an unappetizing political slogan for the party to embrace.
  • They could use Medicaid reform to fund the credits, but that causes the potential problems with coverage numbers outlined above, and will likely generate additional squabbling among governors and states over the funding formula, as outlined in greater detail below.
  • They could use the remaining savings after repealing Obamacare’s tax increases and entitlements—which in the 2015/2016 reconciliation bill totaled $317.5 billion—to fund a new insurance subsidy regime. But such a move raises both policy and political problems. While Republicans could re-direct the $317.5 billion in savings during the first ten years to pay for insurance subsidies, the subsidies would likely have to expire after a decade. Creating a permanent new entitlement (the subsidies) funded by temporary savings would result in a point of order in the Senate—one that takes 60 votes, which Republicans do not have, to overcome—because budget reconciliation bills cannot increase the deficit in any year beyond the ten-year budget window. Thus any subsidies funded by the reconciliation bill’s savings would have to sunset by 2026—a far from ideal outcome. On the political side, the savings in last year’s reconciliation bill came from keeping Obamacare’s reductions in Medicare spending. If Republicans turn around and use that money to fund a new subsidy regime, they would be “raiding Medicare to fund a new entitlement”—the exact same charge Republicans used against Democrats to great effect during the debates over Obamacare.

To put it bluntly, while some Republicans may want to include refundable tax credits in their Obamacare alternative, they have no clear way—and certainly no pain-free way—to fund these credits. Even if they do push forward despite the clear obstacles, finding the right blend among the options listed above will require conversations among members and constituency groups, and multiple rounds of CBO scores for various policy options—all of which will take much more time than House leadership currently envisions.

Then There Are the Political Obstacles

Layered on top of the pay-for difficulties lie other political obstacles preventing quick enactment of a comprehensive “repeal-and-replace” package.

Medicaid: With 16 Republican governors ruling states that expanded Medicaid under Obamacare, and 17 Republican governors in states that did not, the fate of Medicaid expansion remains one of the thorniest questions surrounding repeal. Many states that did expand wish to keep their expansion, while states that did not do not want to be disadvantaged by making what they view as the conservative choice to turn down the new spending from Obamacare. Lawmakers have admitted they have yet to craft a solution on this issue. Attaching Medicaid reform to a “repeal-and-replace” measure will only complicate matters further, by giving states another issue (namely, the new funding formula for the per capita spending caps) to fight over.

House-Senate Differences: While House Republicans gear up to pass a comprehensive “repeal-and-replace” package, reports last week also indicated that Senate leadership still intends to consider legislation more closely resembling the 2015/2016 reconciliation bill. If Speaker Ryan continues to craft a “repeal-and-replace” bill while Majority Leader McConnell pushes “repeal-and-delay,” something will have to bring the two leaders to an agreement reconciling their disparate approaches.

Insurers:Those opposed to the “repeal-and-delay” strategy initially advocated by congressional leaders cited the needs of insurers as reason to pass a full “replacement” of Obamacare concurrent with repeal. Insurers will need to start submitting bids for the 2018 plan cycle by spring, and will want some certainty about how next year’s landscape will look before doing so. Hence the call for a full “repeal-and-replace,” to give insurers fast reassurances about the policy landscape going forward.

But if “full replace” will take until summer to pass—as it almost invariably will—then that argument gets turned on its head. In such circumstances, Congress should act swiftly to include some type of high-risk pool funding for those with pre-existing conditions, to prevent the insurer community from ending up with an influx of very sick, very costly enrollees.

Passing a repeal bill with high-risk pool funding may provide insurers with less certainty than a full “repeal-and-replace” measure, but it would yield infinitely more certainty than Congress arguing until September over the details of “full replace,” with the entire legal and regulatory realm in limbo as insurers must prepare for their 2018 plan offerings.

Conservatives: Some conservatives have philosophical objections to refundable tax credits, or indeed to any “replacement” legislation. Sen. Mike Lee this week called including “replacement” provisions on a repeal bill a “horrible idea.” Lee was one of three Republicans (the others being Ted Cruz and Marco Rubio) who in fall 2015 pushed for more robust repeal legislation, issuing a statement demanding that year’s reconciliation measure include the greatest amount of repeal provisions possible consistent with Senate rules. After the conservatives laid down their marker, the Senate ultimately passed, and the House ratified, the reconciliation measure repealing the law’s entitlements and all of Obamacare’s tax increases.

Some within the party have acknowledged the fractious nature of the “replace” discussions. Ramesh Ponnuru has publicly worried that some conservatives agnostic or skeptical on the merits of a “replace” plan would do nothing following repeal, and therefore wants to link repeal with replace, to force conservatives to vote for a vision of “replace.”

Such maneuvering pre-supposes that conservatives will swallow a “replace” plan they dislike to repeal Obamacare, a dicey proposition given conservatives’ success at obtaining a more robust repeal measure in 2015. It also pre-supposes that conservatives will stand idly by while leadership takes the months necessary to create full-scale “replace” legislation.

If the process continues to drag on in the House, it would not surprise me one bit were conservatives to introduce a discharge petition to force a House floor vote on the 2015/2016 reconciliation bill. Conservatives in the House Freedom Caucus and the Republican Study Committee, likely in conjunction with outside conservative groups, would turn the discharge petition into a litmus test for Republican members of Congress: Are you for repeal—and repeal in the form of legislation that virtually all returning Republicans voted for one short year ago—or not?

While a discharge petition needs 218 member signatures before its sponsor can force a floor vote, the mere introduction of a discharge petition would increase the pressure on House leadership to move quickly on repeal. Moreover, it would highlight the fact that neither Speaker Ryan nor President Trump can afford to spend the entire spring and summer slogging through a long legislative process regarding Obamacare.

Now We Come to the Opportunity Costs

Most of this year’s major action items require the Obamacare reconciliation bill to pass. Once and only once that legislation passes can Congress pass a second budget, allowing for a second budget reconciliation measure to move through the Senate. Specific items held in limbo due to the Obamacare debate include the following.

Tax Reform: Republicans want to use the second reconciliation bill to overhaul the tax code. (President Trump may also want to use the tax reform bill to finance his planned infrastructure package.) But because the current budget does not include reconciliation instructions regarding revenues, Congress must pass another budget with specific reconciliation instructions before tax reform can move through the Senate with a simple (51-vote) majority. But before Congress passes another budget, it must first pass the reconciliation bill (i.e., the Obamacare bill) related to this budget.

Debt Limit: The current suspension of the debt limit expires on March 15. While the Treasury can use extraordinary measures to stave off a debt default for several months, Congress will likely have to address the debt limit prior to its August recess. As with tax reform, the debt limit (and spending and entitlement reforms to accompany same) can be enacted with a simple majority in the Senate via budget reconciliation. But, as with tax reform, doing so first requires passing another budget, which requires enacting the Obamacare reconciliation bill.

Appropriations: The current stopgap spending agreement expires on April 28. Congress will need to pass another spending measure by then—quite possibly including a request by the president for additional border security funds—and begin considering spending bills for the new fiscal year that starts September 30. Here again, passage of these legislative provisions would be greatly aided by passage of another budget to set fiscal parameters, but that cannot happen until the Obamacare reconciliation bill is on the statute books.

As other observers have begun noting, many of the major “must-pass” and “want-to-pass” pieces of legislation—tax reform; Trump’s infrastructure package; a debt limit increase; appropriations legislation; funding for border security—remain essentially captive to the Obamacare “repeal-and-replace” process. The scene resembles the airspace over New York during rush hour, with planes circling overhead while one plane (the Obamacare bill) attempts to land. Unfortunately, the longer the planes circle, one or more of them will run out of fuel, effectively crashing major pieces of the Trump/Ryan agenda due to legislative inaction and neglect.

The Available Political Options

With a legislative process for “repeal-and-replace” likely to take months longer than currently advertised, and a series of other competing priorities contingent on it, Speaker Ryan and President Trump face three options.

Punt: Focus on passing the other agenda items first, and come back to Obamacare later;

Plow Ahead: Remain on the current course, knowing that Obamacare will jeopardize much of Trump’s and Ryan’s other agenda items; or

Pivot/Pare Back: Return to something approaching last year’s reconciliation bill, and postpone major “replace” legislation until a future reconciliation measure.

Given the current environment, the third option seems the clear “least bad” outcome. The first would represent a major political setback, effectively admitting defeat on the president’s top agenda item and betraying Republicans’ seven-year-long commitment to repeal that conservatives sharply opposed to Obamacare will never forget, and may never forgive. The second jeopardizes, if not completely sacrifices, most of the party’s legislative agenda, including items the president will want to tout in his re-election bid.

Therefore, it seems likely that Ryan, Trump, or both will eventually move to pare back the current comprehensive “repeal-and-replace” legislation towards something more closely resembling the 2015/2016 repeal reconciliation bill.

The legislation may include elements of “replace,” but only those with a clear fiscal nexus (due to the Senate’s rules regarding reconciliation) and broad support among Republicans. HSA incentives and funding for high-risk pools might qualify. But more robust provisions, such as Medicaid reforms or refundable tax credits, will likely get jettisoned for the time being, to help pass slimmed down legislation yet this spring.

Time’s a Wastin’

To sum up: The likelihood that House Republicans can get a comprehensive “repeal-and-replace” bill—defined as one with either tax credits, Medicaid reform, or both—1) drafted; 2) cleared by the Senate parliamentarian; 3) scored favorably by CBO; and 4) with enough member support to ensure it passes in time for a mark-up on March 1—two weeks from now—is a nice round number: Zero-point-zero percent.

Likewise the chances of enacting a comprehensive “repeal-and-replace” bill by Congress’ Easter recess. It just won’t happen. For a bill signing ceremony for a comprehensive “repeal-and-replace” bill, August recess seems a likelier, albeit still ambitious, target.

Republicans have already blown through two deadlines on “repeal-and-replace”: the January 27 deadline for committees to report reconciliation measures to the House and Senate Budget Committees, and the President’s Day recess, the original tentative deadline for getting repeal legislation to President Trump’s desk. Any further delays will accelerate both conservative angst and the same types of process stories from the media—“Republicans arguing amongst themselves on repealing Obamacare”—that plagued Democrats from the summer of 2009 through the law’s enactment.

Some may find this analysis harsh, or even impertinent. Some may want to take issue with my assumptions—Newt Gingrich would no doubt dispute CBO’s scoring methods, long and loudly. But policy-making involves crafting solutions given the way things are, not the way we wish them to be. And every day that goes by while Congress remains on the current “repeal-and-replace” pathway—which seems increasingly like a strategic box canyon—will only jeopardize the success of other critical policy priorities.

For all his wealth, Trump gets the same amount of one thing as everyone else: Time. For that reason, his administration and Speaker Ryan should re-assess their current strategy on Obamacare—the sooner the better. Time’s a wastin’, and the entire Republican agenda is at stake.

This post was originally published at The Federalist.

Conservatives’ Choice: Power or Principle?

In the days immediately preceding and following the November 8 election, I observed a distinct evolution in thinking among some rightist thinkers. Some went into the election pledging an outright rebellion in the Senate should a Majority Leader Chuck Schumer use the “nuclear option” to muscle through a Hillary Clinton Supreme Court nominee, but mere days later thought that a Majority Leader Mitch McConnell should consider abolishing the filibuster to allow President Trump’s nominee a smoother path to confirmation.

One couldn’t help but hold on to one’s neck for the bad case of whiplash. Some who proudly defended the filibuster as a bastion of deliberative legislating when they feared Democrats would win the White House and take back the Senate suddenly, instead, when presented with a Republican Senate and president-elect, considered this principle a trifling inconvenience. Those situational ethics present a more fundamental question: Are conservatives willing to forego policy “victories” that might result from a raw use of power, when exercising that power violates critical philosophical principles rooted in a belief in limited government?

That’s one prism through which to view Kellyanne Conway’s announcement that the Trump administration may not enforce Obamacare’s individual mandate. Besides the fact that non-enforcement presents policy problems and makes repeal of Obamacare less likely, it violates a principle at the heart of conservatism: The rule of law.

Not Within the Law

The new president’s executive order on Obamacare, released Friday evening, instructed executive agencies to take actions “to the maximum extent permitted by law” to blunt the effects of Obamacare. There are indeed many ways the Trump administration can act within the scope of existing law to provide relief to consumers, many of which I outlined in a report last week. But blanket non-enforcement of the individual mandate doesn’t qualify as being within the law, any more than President Obama’s policy of blanket non-enforcement for certain classes of immigrants fit within statutory parameters.

Observers have noted the last administration’s many examples of executive overreach on Obamacare have given the new administration grounds to provide regulatory relief on multiple fronts. But two wrongs do not make a right. Take, for instance, the following analysis:

The Administration thus used the public pronouncements of its non-enforcement policies to encourage the regulated community to disregard provisions of [the law]. Prospectively licensing large groups of people to violate a congressional statute for policy reasons is inimical to the Take Care clause.

The quote comes from a paper by University of Michigan professor Nicholas Bagley, talking about President Obama’s 2013 “transitional policy” that allowed people facing cancellation notices to temporarily keep their pre-Obamacare plans. But the same description could apply to not enforcing the individual mandate as well. Conservatives believe that forcing individuals to purchase a product is unconstitutional—but so is an executive refusing to enforce the law. Is the answer to a constitutional violation really another constitutional violation?

Major Practical Concerns

Not enforcing portions of Obamacare also presents logistical questions. Effectively eliminating the individual mandate through non-enforcement could worsen adverse selection—when only sick individuals purchase coverage, raising premiums and driving out additional healthy enrollees. As I noted last week, the new administration does have ways within the law to mitigate against this particular problem, but it remains to be seen how effective they will be.

In many cases, non-enforcement could result in lawsuits. The Obama administration’s unilateral actions generally led to more people getting benefits—insurance subsidies, immigration status, etc.—which made it difficult to find someone with standing to sue.

By contrast, if the Trump administration decides (as some have suggested) to give insurers permission to sell policies that do not meet all of Obamacare’s mandated benefits, purchasers of said policies would have grounds to sue insurers. Obamacare’s mandated benefits are prescribed in law, and if the law is clear, its text trumps (pardon the pun) any regulatory edict from the new administration. Most insurers probably wouldn’t even bother offering such policies because of the legal jeopardy and uncertainty they would face in doing so.

Making Repeal Less Likely?

There’s another practical implication of not enforcing the mandate that should worry conservatives: ironically, it could make Obamacare’s repeal more difficult.

Over the past few weeks Washington has debated whether Congress should repeal Obamacare without enacting a simultaneous replacement. Some pundits have been forthright in admitting that they wish to do so because they fear some members of Congress have a different vision of what an alternative regime should look like. To put it bluntly, they wish to hold repeal hostage to their vision for an Obamacare “replacement.”

The executive unilaterally ending some of Obamacare’s worst effects—albeit temporarily—will take the pressure off members of Congress to do so themselves. The justifiable fear is that action on repeal will get bogged down by internecine squabbling over a vision for “replace,” making the sole movement on Obamacare an executive action—which any future president (or even the current one) could overturn.

Reinforce Congress’ Role

If President Trump unilaterally eliminating the individual mandate isn’t the answer, then what is? For conservatives, the solution should lie with the branch the Constitution’s Framers considered the most important: Congress, the legislative branch Article I of the Constitution establishes. Through its oversight powers, Congress has the ability to investigate and act upon regulatory overreach.

The last Congress was less feckless in blunting unilateral executive actions than some might think. Its preliminary victory in the case of House v. Burwell, regarding Obamacare’s cost-sharing subsidies to insurers, set a critical precedent that Congress has the right to litigate on matters of constitutional import—namely, the executive (in this case, the Obama administration) spending funds without an express appropriation from Congress. Hopefully the Trump administration will vacate the Obama administration’s appeal of the District Court ruling, allowing this precedent to stand.

Congress should continue to use its investigatory powers to explore executive overreach. It should obtain from the Trump administration documents regarding the cost-sharing subsidies that the Obama administration refused to disclose, despite subpoenae from Congress ordering them to do so. These documents will reveal why and how the Obama administration created an appropriation these subsidies out of whole cloth. More importantly, continuing to investigate the lawless actions of the Obama administration will send a clear message to dissuade its successors from acting similarly.

Obamacare Is Ultimately About Power

Obamacare was really never about health care so much as power—the power of government to regulate health care, tax health care, and force people to purchase health care (or at least health insurance). It seems somehow fitting that Obamacare gave the nation so many examples of executive unilateralism.

But to conservatives, the rule of law—in many ways the antithesis of raw power—stands pre-eminent. A Republican administration should not be tempted to “use unilateral actions to achieve conservative ends.” Such behavior represents a contradiction in terms. That’s why it’s important to watch the new administration’s actions closely in the coming days and weeks. Obamacare may not be worth keeping, but the rule of law is.

This post was originally published at The Federalist.

Three Points CBO Omitted from Its Report on Obamacare Repeal

This morning, the Congressional Budget Office (CBO) released a report analyzing the effects of Obamacare repeal. Specifically, CBO claimed that enacting a reconciliation bill that the last Congress passed, but President Obama vetoed, would increase the number of uninsured (even relative to pre-Obamacare numbers) while raising insurance premiums appreciably. CBO believes that leaving Obamacare’s major insurance regulations in place—which last year’s reconciliation bill did—while repealing the law’s subsidies, and effectively repealing the individual mandate, will destabilize insurance markets, cause insurers to exit the marketplace, and raise premiums.

However, there are three important facts the CBO report didn’t address:

CBO Has Gotten Previous Estimates Wrong

While no forecaster has a perfect batting average, CBO’s track record with respect to Obamacare is perhaps less ideal than most. CBO thought that the CLASS Act—which Democratic Senator Kent Conrad infamously called “a Ponzi scheme of the first order, the kind of thing for which Bernie Madoff would be proud of—could be implemented in an actuarially sound manner. The Obama Administration eventually had to admit that the CLASS Act was not a fiscally sound program. And CBO failed to conduct enough analysis that could have predicted the CLASS Act’s failure prior to Obamacare’s passage—a point former Director Doug Elmendorf has publicly refused to admit.

With respect to enrollment, CBO significantly over-estimated the number of individuals that would sign up for Obamacare. In March 2010, as Democrats were ready to pass the law, CBO claimed that in 2016, 21 million individuals would sign up for coverage on insurance Exchanges. The reality has proven far different: Less than half as many individuals (10.4 million) had Exchange coverage as of June 30, 2016. And this much lower enrollment comes despite the 2012 Supreme Court ruling making Medicaid expansion optional for states—which actually increased Exchange enrollment in states that have declined to expand Medicaid.

CBO claimed in 2010 that the individual mandate would cause tens of millions of individuals to sign up for coverage. It hasn’t happened. Now CBO claims that effectively repealing the mandate while leaving insurance regulations in place will cause healthy individuals to cancel coverage en masse. Could that happen? Absolutely. But given their recent track record on this specific issue, should one really take CBO’s word as gospel…?

The Solution Is More Repeal, Not Less

In a paradoxical way, the CBO report actually makes a strong case for expanding the scope of last year’s reconciliation bill. The paper notes on several occasions that repealing Obamacare’s insurance subsidies, and effectively repealing the individual mandate, while leaving its insurance regulations in place, would harm insurance markets. For instance, CBO notes that:

The number of people without health insurance would be smaller if, in addition to the changes in [last year’s reconciliation bill], the insurance market reforms mentioned above were also repealed.

Congress chose not to litigate the question of whether Obamacare’s major insurance mandates were budgetary in nature, and thus could be included in a budget reconciliation bill, last year. It should do so now. The findings of this CBO paper, along with other scoring estimates, give ample ammunition to those who consider it entirely consistent with past Senate precedents to include repeal of the major insurance regulations in budget reconciliation.

The Trump Administration Can Mitigate Repeal’s Effects

Even if Congress cannot or will not expand the scope of the reconciliation bill to include the major insurance regulations under Obamacare, the Trump Administration can act to mitigate against the kinds of concerns outlined in the CBO paper. A report I released just this morning outlines some of them. The Administration can significantly shorten—to just a few weeks, or even shorter—the annual open enrollment period, which can protect against individuals signing up for coverage after they get sick. It can reduce special enrollment periods outside of open enrollment, and require verification for all special enrollment. And it can take other administrative actions to mitigate the effects of a spike in premiums.

Fact Checking Politico’s Hit Piece on Tom Price

Earlier this evening, Politico released an “article” discussing “Tom Price’s Radically Conservative Vision for American Health Care.” The piece’s first sentence claimed that “gutting Obamacare might be the least controversial part of Tom Price’s health care agenda”—a loaded introduction if ever there were one. The article goes on to quote seven separate liberal analysts—including the President of Planned Parenthood—while not including a single substantive Republican quote until the very last paragraph of a 27-paragraph piece.

Given this opinion piece masquerading as “journalism,” it’s worth pointing out several important facts, falsehoods, and omissions in the Politico story:

CLAIM:           Republicans “may look beyond repealing and replacing Obamacare to try to scale back Medicare and Medicaid, popular entitlements that cover roughly 130 million people, many of whom are sick, poor, and vulnerable.”

FACT:                         It’s ironic that the Politico reporters suddenly care about the “sick, poor, and vulnerable.” I’ve been writing about how Obamacare encourages discrimination against the vulnerable literally for years—including a few short weeks ago. If any Politico reporters have written on how Obamacare encourages states to expand Medicaid to able-bodied adults rather than to cover individuals with disabilities, I have yet to read those articles.

This week came a report that no fewer than 752 individuals with disabilities have died—yes, died—while on waiting lists to receive Medicaid services since that state expanded coverage under Obamacare to able-bodied adults. If the Politico reporters—much less the liberal advocates the reporters interviewed for the article—care so much about the “sick, poor, and vulnerable,” when will they cover this Obamacare-induced tragedy?

CLAIM:           “Price…has proposed policies that are more conservative than those of many House Republican colleagues.”

FACT:                         Dr. Price’s Fiscal Year 2016 budget—which included provisions related to Obamacare repeal, premium support for Medicare, and block grants for Medicaid—passed the House with 228 votes. How can Politico claim that Dr. Price’s policies “are more conservative than those of many House Republican colleagues,” when over 93% of them publicly endorsed his vision?

CLAIM:           “The vast majority of the 20 million people now covered under Obamacare would have far less robust coverage—if they got anything at all.”

FACT:                         This claim presupposes 1) that all individuals covered under Obamacare want to buy health coverage, and 2) that they want to buy the type of health coverage Obamacare forces them to purchase. It ignores the fact that premiums increased by thousands of dollars in 2014 because individuals were forced to buy richer coverage.

It also ignores the fact that nearly 8 million individuals have paid the tax penalty associated with not buying Obamacare-compliant health coverage—because they cannot afford it, do not want it, or both—and another 12.4 million have requested exemptions from the Obamacare mandate. Depending on the degree of overlap between individuals who paid the mandate tax penalty and individuals who claimed exemptions, the number of Obamacare refuseniks could actually exceed the number of individuals newly covered under the law.

Instead, this claim comes at the question of insurance coverage from President Obama’s liberal, paternalistic perspective. When millions of people started receiving Obamacare-related cancellation notices in the mail, the President gave a speech stating how all those plans were “substandard:” “A lot of people thought they were buying coverage, and it turned out not to be so good.” In other words, “If you liked your plan, you’re an idiot.”

CLAIM:           “Price also supports privatizing Medicare…”

FACT:                         The premium support plan included in the House Republican budget includes 1) a federal contribution that increases every year to fund 2) a federally-regulated plan with 3) federally-mandated benefits and 4) the option to continue in government-run Medicare if beneficiaries so choose. Which of these four points would the Politico reporters deem “privatizing?”

CLAIM:           “…an approach that Democrats lambaste as a voucher system…”

FACT:                         That claim is both ironic and hypocritical coming from Democrats, as a version of premium support endorsed by House Speaker Ryan and Senate Finance Committee Ranking Member Ron Wyden in 2011 would have utilized the exact same bidding mechanism as Obamacare itself. Do Democrats “lambaste” Obamacare’s Exchanges as a “voucher system?” Interestingly enough, the Politico reporters neither note this irony, nor apparently bothered to ask the question.

CLAIM:           “…that would gut a 50-year-old social contract and shift a growing share of health care costs onto seniors.”

FACT:                         The form of premium support endorsed by Rep. Price in this year’s House Republican budget would, according to a September 2013 analysis from the Congressional Budget Office (CBO), save both the federal government and seniors money. And don’t take my word for it—here’s a quote from the CBO paper:

CBO’s analysis implies that beneficiaries’ total payments would be about 6 percent lower, on average, under the average-bid option than under current law. That reduction results from the combination of the lower average premiums paid above and a reduction in average out-of-pocket costs, which would result primarily from higher enrollment in lower-bidding private plans.

Where exactly among the highlighted phrases did the Politico reporters get the idea that premium support will “shift a growing share of health care costs onto seniors?”

CLAIM:           “Price also wants to limit federal Medicaid spending to give states a lump sum, or block grant, and more control over how they could use it—a dream of conservative Republicans for years, and a nightmare for advocates for the poor who fear that many would lose coverage.”

FACT:                         A block grant would increase federal spending on Medicaid annually—just by slightly less than prior estimates. Only in Washington could granting a program a three percent increase rather than a five percent increase classify as a “cut.”

Having provided actual facts to rebut the piece’s nonsensical claims, I’ll offer some free advice: If the folks on Politico’s payroll want to publish liberal talking points unchallenged, they should quit their jobs, go out on their own, and do what I do for a living. I’m all for a free press, and freedom of speech, but passing opinion—and one-sided opinion at that—as “journalism” does a disservice to the name.

What If GOP Alternatives to Obamacare Cover Fewer People–And That’s Not a Flaw?

Republican lawmakers crafting alternatives to Obamacare face a fundamental decision: whether to focus on expanding coverage or containing costs. Their choice may be driven, at least in part, by budget scorekeepers.

The Congressional Budget Office released a report in December 2008 on key issues in thumbnail_Figure 2-2.jpganalyzing major health-care proposals. Included was a chart projecting individuals’ willingness to enroll in health insurance at various levels of subsidy (in technical terms, an elasticity curve). That curve suggested that insurance enrollment would remain below 40% until subsidies reached 70% of cost and that even if costs were 100% subsidized, about a fifth of individuals would decline to enroll. (And that level of subsidy is probably much greater than many Republicans would be willing to offer.)

This scenario is what prompted President Barack Obama to accept an individual mandate after he had campaigned against it; Nancy-Ann DeParle, one of his advisers overseeing health-care efforts, wrote in April 2009 that “the Congressional Budget Office (CBO) will likely take the position that without an individual responsibility requirement, half of the uninsured will be left uncovered.”

Having fought a mandate to purchase health insurance on both policy and constitutional grounds, Republicans are unlikely to include one in their alternative. This means that CBO is likely to analyze, or score, such a proposal as covering fewer individuals than Obamacare. While the GOP plan taking shape may not contain the legislative detail necessary to receive a CBO analysis, any Republican alternative is likely to be criticized by Obamacare supporters for not covering as many Americans.

Republicans could, however, embrace such an outcome as a feature rather than a flaw to their proposal. CBO concluded last September that eliminating the mandate would dramatically reduce coverage levels; this could be cited as grounds to argue that most of Obamacare’s coverage gains have come due to government coercion.

Some conservatives may argue that lowering costs, not increasing health coverage, is the proper metric by which to gauge health-care reforms. The plan I worked on for America Next, a conservative think tank, took this approach, focusing on reducing costs rather than on implementing a major coverage expansion.

Other details may spark controversy, but lowering costs vs. increasing coverage is a fundamental distinction likely to define any alternative to Obamacare. The option Republicans choose and the way they frame the issue will go a long way toward shaping the policy and political battles to come.

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

Has Obamacare Enrollment Peaked?

Has the effort peaked to sign up uninsured Americans for coverage? The announcement that the nonprofit organization Enroll America is laying off staff and redirecting its focus in the face of funding cuts comes amid inconsistent sign-ups during the second Affordable Care Act open-enrollment period and concerns about affordability.

A recent New York Times analysis compared Kaiser Family Foundation estimates of potential enrollees with sign-up data from the Department of Health and Human Services. While some states that signed up few people in 2014 recovered during the 2015 open enrollment, other states lagged: “California, the state with the most enrollments in 2014, increased them by only one percentage point this year, despite a big investment in outreach. New York improved by only two percentage points. Washington’s rates are unchanged.”

Most states could not post consistent gains in both open-enrollment periods. An official from Avalere Health, a consulting firm, told the Times that she was “starting to wonder if we’ve overestimated the whole thing.”

A recent analysis from Avalere Health demonstrates why the enrollment push may have peaked. The percentage of eligible Americans signing up drops off significantly as income rises and federal subsidies phase out, suggesting that absent subsidies Americans find the exchange insurance products unaffordable or of little value. And if the carrot of federal subsidies has not resulted in expected enrollment, the stick—the mandate to purchase insurance—seems even less effective: The special open-enrollment period to accompany this year’s tax-filing season has resulted in 36,000 sign-ups in the 37 states using HealthCare.gov. But 4 million to 6 million people are expected to pay the mandate tax.

The Congressional Budget Office (CBO) estimates that ACA enrollment will average 11 million individuals, with 8 million receiving subsidies. So far, enrollees reporting incomes above the threshold for subsidies are only 2% of uninsured individuals who have signed up, making it hard to see how the administration can reach CBO’s estimate of 6 million unsubsidized exchange enrollees in 2016. The fact that California, New York, and Washington state achieved only marginal enrollment improvements from 2014 to 2015 does not bode well for achieving CBO’s target of 15 million subsidized enrollees next year—a more than 50% increase from the 9.9 million individuals who qualified for subsidies in 2015.

With outreach efforts scaling back, and many Americans uninterested in ACA coverage absent hefty federal inducements, CBO’s estimate of 21 million enrollees next year seems unlikely to be met. If this year’s results from California and New York are any indication, a good question may be whether 2016 enrollment will grow at all.

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

Obamacare and Taxes? It’s Complicated…

In a January Think Tank post, I noted potential complications the health-care law’s interactions with the tax code could present for millions of filers this season. In just the past week, we’ve seen:

* Many recipients of federal subsidies have been required to repay some of that money when they filed their taxes. Although some people overestimated their 2014 income when they applied for subsidies, and received a larger-than-expected refund as a result, the majority of subsidy recipients (52%) did the opposite, according to an H&R Block analysis released Tuesday. Those who underestimated their income and collected oversize subsidy payments in 2014 have seen their refunds reduced, H&R Block said, by an average of $530—or, approximately 17%—as the federal government collects the overage.

* Some filers are paying an average $172 in taxes for non-compliance with the individual mandate, the H&R Block analysis said.

* On Friday, the Obama administration announced that about 800,000 recipients of subsidies had been mailed incorrect tax forms. If these households have not yet filed their 2014 taxes, their tax returns—and thus their refunds—will be delayed until they receive the corrected form from the federal government.

*The administration also said Tuesday that the estimated 50,000 households that had received incorrect tax forms and had already filed their 2014 taxes would not be required to repay monies to the federal government if, because of the incorrect forms, they had underpaid their tax and subsidy obligations. The announcement did not explain why an error discovered in January was not made public until last week, or how much this leniency will cost the federal government, or whether the office or contractor responsible for the mistake will face financial penalties for its error.

Last week, the administration announced a special extension of the Obamacare enrollment period, from March 15 to April 30, for households that discovered during the tax-filing season that they were subject to the individual mandate tax. The administration said that the enrollment extension would be limited to individuals who attest they were unaware of the mandate tax penalty before filing their taxes, and that it would not return in future years. There is, however, no independent verification of people’s claims about the tax penalty, and the administration could easily find reasons to implement an open-enrollment extension in the future.

The administration’s enrollment strategy seems inclined toward leniency—for the policy reason of trying to enroll as many individuals as possible and for the political reason of avoiding actions that could make the law more unpopular. Some advocates of a longer enrollment period have cited the ability to “diminish hostility” toward the law as one reason to allow Americans a second bite at the enrollment apple.

This raises two questions. First, whether and how much executive actions such as the forgiveness associated with the tax form errors will cost taxpayers. Second, whether future administrations, which may not be as favorably inclined toward the health-care law, will take as many steps to cushion citizens from adverse effects of the law.

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