Tag Archives: Medicaid expansion

How Graham-Cassidy’s Funding Formula Gives Washington Unprecedented Power

The past several days have seen competing analyses over the block-grant funding formula proposed in health-care legislation by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA). The bill’s sponsors have one set of spreadsheets showing the potential allocation of funds to states under their plan, the liberal Center on Budget and Policy Priorities has another, and consultants at Avalere (funded in this case by the liberal Center for American Progress) have a third analysis quantifying which states would gain or lose under the bill’s funding formula.

So who’s right? Which states will end up the proverbial winners and losers under the Graham-Cassidy bill? The answer is simple: Nope.

Policy-makers arguing over minute intricacies of the funding formula miss the fact that the bill gives the executive virtually unlimited discretion to change that funding formula. Whether the statutory formula benefits a given state could well matter less than what federal bureaucrats want to do to tilt the formula in favor of, or against, that state.

While the bill’s proponents claim the legislation will increase state authority, in reality the bill gives unelected bureaucrats the power to distribute nearly $1.2 trillion in taxpayer dollars unilaterally. In so doing, the bill concentrates rather than diminishes Washington’s power—and could set the course for the “mother of all backroom deals” to pass the legislation.

A Complicated Spending Formula

To start with, the bill repeals Obamacare’s Medicaid expansion and exchange subsidies, effective in January 2020. It then replaces those two programs with a block grant totaling $1.176 trillion from 2020 through 2026. All else equal, this set of actions would disadvantage states that expanded Medicaid, because the Medicaid expansion money currently being received by 31 states (plus the District of Columbia) would be re-distributed among all 50 states.

From there the formula gets more complicated. (You can read the sponsors’ description of it here.) The bill attempts to equalize per-person funding among all states by 2026, with funds tied to a state’s number of individuals with incomes between 50 percent and 138 percent of the poverty level.

The bill would adjust the funding formula to reflect both risk adjustment and actuarial value—in laymen’s terms, it would work to ensure that states with sicker-than-average individuals get more funding, and that states that choose to offer richer-than-average benefits don’t draw down excess federal funds as a result. Those adjustments would phase in over several years, with the goal of reaching per-person parity among states by 2026.

Thus far, the formula carries a logic to it. For years conservatives have complained that Medicaid’s match rate formula gives wealthy states more incentives to draw down federal funds than poor states, and that rich states like New York and New Jersey have received a disproportionate share of Medicaid funds as a result. The bill’s sponsors claim that the bill “treats all Americans the same no matter where they live.”

Would that that claim were true. Page 30 of the bill demonstrates otherwise.

The Trillion-Dollar Loophole

Page 30 of the Graham-Cassidy bill, which creates a “state specific population adjustment factor,” completely undermines the rest of the bill’s funding formula:

IN GENERAL.—For calendar years after 2020, the Secretary may adjust the amount determined for a State for a year under subparagraph (B) or (C) and adjusted under subparagraphs (D) and (E) according to a population adjustment factor developed by the Secretary.

In other words, if the secretary of Health and Human Services (HHS) doesn’t like the funding formula, he can change it however he likes. That’s a trillion-dollar loophole that leaves HHS bureaucrats with the ultimate say over how much money states will receive.

The bill does say that HHS must develop “legitimate factors” that affect state health expenditures—so it can’t allocate funding based on, say, the number of people who own red socks in Alabama. But beyond those two words, pretty much anything goes.

The bill says the “legitimate factors” for population adjustment “may include state demographics, wage rates, [and] income levels,” but it doesn’t limit the factors to those three characteristics—and it doesn’t limit the amount that HHS can adjust the funding formula to reflect those characteristics either. If a hurricane like Harvey struck Texas three years from now, Secretary Tom Price would be within his rights under the bill to cite a public health emergency and dedicate 100 percent of the federal grant funds—which total $146 billion in 2020—solely to Texas.

That scenario seems unlikely, but it shows the massive and virtually unprecedented power HHS would have under the bill to control more than $1 trillion in federal spending by executive fiat. To top it off, pages 6 through 8 of the bill create a separate pot of $25 billion to subsidize insurers for 2019 and 2020, and tell the Centers for Medicare and Medicaid Services administrator to “determine an appropriate procedure” for allocating the funds. That’s another blank check of $25,000,000,000 in taxpayer funds, given to federal bureaucrats to spend as they see fit.

In an op-ed over the weekend, former Florida Gov. Jeb Bush (R-FL) rightly criticized Obamacare for “put[ting] enormous power in the hands of a few people in Washington.” But the Graham-Cassidy proposal he endorses would imbue federal bureaucrats with an authority over spending the likes of which Obamacare never even contemplated.

Backroom Deals Ahead

With an unprecedented level of authority granted to federal bureaucrats to determine how much funding states receive, you can easily guess what’s coming next. Unnamed Senate staffers already invoked strip-club terminology in July, claiming they would “make it rain” on moderates with hundreds of billions of dollars in “candy.” Under the current version of the bill, HHS staff now have virtual carte blanche to promise all sorts of “state specific population adjustment factors” to influence the votes of wavering senators.

The potential for even more backroom deals than the prior versions of “repeal-and-replace” demonstrates the pernicious power that trillions of dollars in spending delivers to Washington. Draining the swamp shouldn’t involve distributing money from Washington out to states, whether under a simple formula or executive discretion. It should involve eliminating Washington’s role in doling out money entirely.

That’s what Republicans promised when they said they would repeal Obamacare—to end the law’s spending, not work on “spreading the wealth around.” That’s what they should deliver.

This post was originally published in The Federalist.

Summary of Graham-Cassidy Legislation

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

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

Of particular note: It is unclear whether this legislative language has been fully vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it would do should the Graham-Cassidy measure receive floor consideration—the Parliamentarian advises whether provisions are budgetary in nature and can be included in the bill (which can pass with a 51-vote simple majority), and which provisions are not budgetary in nature and must be considered separately (i.e., require 60 votes to pass).

As the bill was released prior to issuance of a CBO score, it is entirely possible the Parliamentarian has not fully vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I

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

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

Repeals the subsidy regime entirely after December 31, 2019.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses. Lowers revenues by a total of $19.2 billion over ten years.

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

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

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

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. Saves $146 million over ten years.

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

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

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

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

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

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

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education. Adds to existing exemptions (drafted in BCRA) provisions exempting those in inpatient or intensive outpatient substance abuse treatment and full-time students from Medicaid work requirements. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. States that exceed their caps would have their federal match reduced in the following fiscal year.

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

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

Creates four classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; and 4) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion.

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

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

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

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

Community Health Centers:             Increases funding for community health centers by $422 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” above). Spends $422 million over ten years.

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

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

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019, and does not appropriate funds for cost-sharing subsidy claims for plan years through 2019. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House.

John Kasich’s Obamacare Bailout Plan

On Thursday morning, governors John Kasich (R-OH) and John Hickenlooper (D-CO) released a plan to “stabilize” Obamacare insurance markets. Here’s what you need to know about the details of the proposal.

John Kasich Doesn’t Want to Repeal Obamacare

It’s worth repeating that, as recently as three years ago, Kasich said the following regarding the health care law: “From Day One, and up until today and into tomorrow, I do not support Obamacare. I never have, and I believe it should be repealed.”

Oh, how times have changed. The governors’ plan would not only not repeal Obamacare, it would further entrench the law, by giving tens of billions, and more likely hundreds of billions, of new taxpayer funds to wealthy insurance companies.

Governors Want Trump to Violate the Constitution

The plan calls on the Trump administration to “commit to making cost-sharing reduction payments.” But as this space has previously described, the United States has an interesting document—you may have heard of it—called the Constitution. That Constitution places the “power of the purse” with Congress, not the executive.

If Congress does appropriate funds—for cost-sharing reductions or anything else—the executive cannot refuse to spend that money, per a prior Supreme Court ruling. But if Congress does not appropriate funds, the executive cannot spend money. To do otherwise would violate a criminal statute.

Asking the Trump administration to violate the Constitution may seem like a natural request to someone like Kasich, a big-government liberal who ran into legal trouble for expanding his state’s Medicaid program unilaterally. But our nation is a government of laws, not men, which makes obeying the law an obligation of all citizens, let alone the chief executive.

A Selective History on Reinsurance

The blueprint cites Republicans’ proposed “stability funds” during the “repeal-and-replace” debate to suggest a “temporary” stability fund providing corporate welfare to insurers—demonstrating the lack of wisdom of the original congressional proposal. In addition to this “temporary” stability fund, the governors’ plan also claims that “the federal government has gone back on its commitment to these programs, in some cases refusing to fully fund [sic] risk sharing programs.” It goes on to propose that “Congress should modify and strengthen federal risk sharing mechanisms, including risk adjustments and reinsurance.”

The claims by the governors defy facts, particularly on reinsurance. The Government Accountability Office concluded last year that the Obama administration violated the law to give insurance companies billions more dollars in reinsurance funds than they deserved—prioritizing corporate welfare to insurers over statutorily required payments back to the U.S. Treasury.

But even after the Obama administration violated the law to give insurers billions more than they were due, the governors still feel the need to propose two separate “stability” (read: bailout) funds to prop up Obamacare. It demonstrates the massive “cash suck” that Obamacare has placed on the federal fisc.

An Impractical Proposal on Federal Employee Coverage

The plan also suggests that Congress should “allow residents in underserved counties”—defined as those with only one insurer on the exchange—“to buy into the federal employee benefit program, giving residents in rural counties access to the same health care as federal workers.”

This talking point—and it sounds like little more than a talking point—appears a solution in search of a problem, for several reasons. First, the Federal Employee Health Benefits Program (FEHBP) has very high premiums for federal workers, masked by massive federal subsidies. To provide some context, the Blue Cross Blue Shield Standard Option—the most popular option in FEHBP—has a monthly premium for 2017 of $709.93 for an individual. That total stands nearly 50 percent higher than the average $476 monthly premium paid by exchange participants this year. And the cost of a family plan for the Blue Cross Blue Shield Standard Option in FEHBP—$1,645.48 per month, or $19,745.76 annually—exceeds the cost of most cars.

FEHBP has such high premiums because it provides far richer benefits than the Obamacare exchanges. A 2009 Congressional Research Service report found that the Blue Cross Blue Shield standard option pays an average percentage of health expenses—in technical terms, the plan’s actuarial value—of 87 percent. By contrast, Obamacare links its insurance subsidies to the second-least-costly silver plan, which has an actuarial value of 70 percent.

Because the federal employee plan provides such generous coverage, opening it up to exchange customers would necessitate massive new increases in subsidies, which the governors’ plan also alludes to (“provide adequate and effective subsidies”). Combined with the reinsurance and cost-sharing reduction payments, it amounts to propping up Obamacare on taxpayers’ dime.

Millions of Americans found out in 2013 that when it comes to Obamacare, if you like your plan, you may not be able to keep it. But with respect to both Obamacare and the governors’ proposal, regardless of whether you like the plan, you’ll definitely be required to pay for it.

This post was originally published at The Federalist.

A “Grand Bargain” on Obamacare Repeal?

To know where you’re going, it helps to recognize where you’ve been. Examining the causes of Republicans’ legislative setbacks on health care—including last month’s dramatic failure of a “skinny” repeal bill on the Senate floor—provides the glimmer of a path forward for a legislative “repeal-and-replace” package, if they are bold enough to take it.

In both the House and the Senate, debate focused on a push-pull between two competing issues: The status of Medicaid expansion in the 31 states that accepted it, and what to do about Obamacare’s regulatory regime. During the spring and summer, congressional leaders attempted messy compromises on each issue, phasing out the higher federal match for Medicaid expansion populations over time, while crafting complex processes allowing states, insurers, or both to waive some—but not all—of Obamacare’s regulatory requirements.

But rather than constructing substantively cumbersome waiver arrangements—the legislative equivalent of a camel being a horse written by committee—Occam’s Razor suggests a simpler, cleaner solution: Preserving the status quo (i.e., the enhanced federal match) on Medicaid expansion in exchange for full repeal of Obamacare’s insurance regulations at the federal level.

A “grand bargain” in this vein would give Senate moderates a clear win on Medicaid expansion, while providing conservatives their desired outcome on Obamacare’s regulations. For this conservative at least, the regulations represent the heart of the law, prompting both its spending on exchange subsidies—to offset the higher premium costs from the regulatory mandates—and the taxes needed to fund that spending. Expelling the regulations from the federal statute books would represent a clear step towards the promise of repealing Obamacare “root and branch,” and return control of health insurance to the states, where it lay from 1947’s McCarran-Ferguson Act until Obamacare.

Federal Regulations Are Driving Up Health Costs

When coupled with structural reforms to Medicaid—a block grant or per capita caps—included in the House and Senate bills, repealing the federal regulations would enable the “laboratories of democracy” to reassert control over their health insurance markets and Medicaid programs. It would also contrast favorably with a recent proposal introduced by senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA). While Graham claims his plan would “empower each individual state to choose the path that works best for them,” in reality it would retain federal dictates regarding pre-existing conditions—the most costly of all the Obamacare mandates.

In a sad irony, some of the same senators who want Congress to respect their states’ decisions to expand Medicaid also want to dictate to other states—as the Graham-Cassidy plan does—how their insurance markets should function. But the true test of federalism applies not in the principle’s convenience, but in its inconvenience.

I do not support single-payer health care, but as a federalist, I support the right of states like California and Vermont to explore a state single-payer system. There are other, arguably better, ways to cover individuals with pre-existing conditions than a Washington-imposed requirement, and true adherents of federalism would empower states to explore them.

Yes, This Idea Is Imperfect

To be sure, even this attempted “grand bargain” includes noteworthy flaws. Retaining the enhanced Medicaid match encourages states to prioritize expansion populations over individuals with disabilities in traditional Medicaid, and may lure even more states to accept the expansion. Keeping the higher Medicaid spending levels would preclude repealing all of Obamacare’s tax increases. And the Senate parliamentarian may advise that repealing Obamacare’s regulations does not comport with the budget reconciliation process. But despite the obvious obstacles, lawmakers should seriously explore this option. After Republicans promised repeal for four straight election cycles, the American people deserve no less.

Throughout the repeal process, conservatives have bent over backwards to accommodate moderates’ shifting legislative goalposts. When moderates objected to passing the repeal legislation all but one of them voted for two years ago, conservatives helped construct a “repeal-and-replace” bill. When moderates wanted to retain the Medicaid expansion in their states—even though the 2015 repeal bill moderates voted for eliminated it entirely—conservatives agreed, albeit at the traditional match rates. And when Senate moderates complained, conservatives agreed to a longer phase-out of the higher match rate, despite justifiable fears that the phase-out would never occur.

Winston Churchill purportedly claimed that Americans will always do the right thing—once they have exhausted every other possibility. This “grand bargain” may not represent the “right” outcome, or the best outcome. But conservatives have exhausted many other possibilities in attempting to come to an agreement. Perhaps moderates will finally come to accept federalism—giving states a true choice over their insurance markets, rather than trying to dictate terms—as the solution to keeping their promise to the American people and repealing (at least part of) Obamacare.

This post was originally published at The Federalist.

UPDATED Summary of Senate Health Care Legislation

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

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

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

 

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

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

A full summary of the bill, as amended, follows below, along with possible conservative concerns where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

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

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I

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

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

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

Modifies the existing Obamacare subsidy regime, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

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

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

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

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

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

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

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

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses. Lowers revenues by a total of $19.2 billion over ten years.

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

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

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

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

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

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 through 2023.)

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

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

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

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

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

Non-Expansion State Funding:             Includes $10 billion ($2 billion per year) in funding for Medicaid non-expansion states, for calendar years 2018 through 2022. States can receive a 100 percent federal match (95 percent in 2022), up to their share of the allotment. A non-expansion state’s share of the $2 billion in annual allotments would be determined by its share of individuals below 138% of the federal poverty level (FPL) when compared to non-expansion states. This funding would be excluded from the Medicaid per capita spending caps discussed in greater detail below. Spends $10 billion over ten years.

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

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

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 billion over ten years.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. States that exceed their caps would have their federal match reduced in the following fiscal year.

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

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

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion. Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period.

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

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

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

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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

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

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

Opioid Funding:       Appropriates $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research. The $45 billion in funds are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending. Spends $40.7 billion over ten years.

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

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2019, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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

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

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

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

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

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

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

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

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

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Title III

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

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

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

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

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

Does Andy Slavitt Know Anything About Medicaid?

The debate on health care has seen numerous examples of hyperbolic rhetoric in recent months. But one series of allegations made earlier this month takes the cake, both for its factual ignorance and logical incoherence. That these demonstrably false allegations were made by a former senior official in the Obama administration makes them that much more disconcerting.

While many Americans were enjoying a long Independence Day weekend, former acting administrator of the Centers for Medicare and Medicaid Services (CMS) Andy Slavitt took to Twitter to make the bold claim that Republicans were changing their health-care bill “not just to gut Medicaid, but to allow states to eliminate it.”

Before delving into his bill of particulars, it’s worth rebutting the overall claim that Republicans would allow states to “eliminate” Medicaid. That’s false—and provably so. Under our Constitution, the federal government cannot require states to participate in a program to begin with. By definition, the Republican health-care bill cannot “allow states to eliminate” Medicaid—states already have that right, and always will. That’s the point of the Tenth Amendment, and of federalism. Perhaps Slavitt needs to read the Constitution, and if he doesn’t have a copy, I will gladly lend him mine.

Moreover, Slavitt’s allegation reflects not just ignorance of fundamental constitutional principles, but the history of Medicaid itself. Arizona did not join the Medicaid program until 1982, 17 years after Medicaid’s creation, and nearly a decade after every other state joined the program. If, as Slavitt claims, Republicans are concocting some nefarious plot to “allow” states to “eliminate” Medicaid, then why did a Democratic Congress “allow” Arizona not to join Medicaid for nearly two decades after the program’s creation? Again, his allegations are, in a word, nonsense—because he either does not know, or does not wish to know, how Medicaid works.

These Waivers Ain’t New, Buddy

As Slavitt’s general claim is outlandishly ignorant, so too the details supposedly bolstering his assertions. Specifically, he claims that “the new state waiver process in the Senate bill already allows Medicaid to be replaced by giving [people] a subsidy.” Setting aside the question of whether giving some Medicaid beneficiaries access to private insurance coverage represents good policy, this claim likewise lacks any factual basis—because the waiver program he mentions has nothing to do with Medicaid.

Slavitt’s claim about a “new state waiver process” references Section 207 of the Senate bill (pages 138-145 here). That language doesn’t create a “new” state waiver process; rather, it amends an existing waiver program created by Section 1332 of Obamacare. Under Section 1332(a)(2) of the law, states can only use the innovation program to waive specific requirements: 1) the individual mandate to purchase coverage; 2) the employer mandate to offer coverage; 3) subsidies for exchange coverage, which states can take as a block grant and distribute to their citizens through other means; and 4) some insurance regulations, such as the definition of a qualified health plan, essential benefits, and actuarial value requirements (see page 98 here). While the Senate bill would change the way states could apply for waivers, it would not change what provisions states could waive.

To summarize: The waiver process outlined above—which Slavitt claims will be used to “eliminate” Medicaid by moving Medicaid beneficiaries off private coverage—says nothing about Medicaid. The Medicaid Payment and Access Commission, which advises Congress on Medicaid policies, admits this Section 1332 waiver process “cannot be used to change Medicaid.” Regulatory guidance put out by CMS while Andy Slavitt was running it noted the inability of Section 1332 waivers to reform Medicaid. And a reporter helpfully pointed all this out to Slavitt during his Twitter posts, yet he didn’t change his argument one whit, or even bother to acknowledge these inconvenient truths.

Credibility: Shot

While at CMS, Slavitt ran an organization which, as the New York Times noted, “finances health care for one in three Americans and has a budget bigger than the Pentagon’s.” For that reason, there’s no other way to say it: Given the number of false statements in Slavitt’s Medicaid Twitter rant, he is either grossly misinformed about how Medicaid operates—in other words, he was never competent to run such a large organization in the first place—or he’s flat-out lying to the American public now.

Either way, his statements deserve much more scrutiny than they’ve received from an otherwise fawning press. Instead of writing pieces lionizing Slavitt as an Obamacare “rabble-rouser,” analysts should focus more on his misstatements and hypocrisy—his apparent failure to go on Obamacare himself while running the law’s exchanges, and his attacks on Republican plans to cap Medicaid spending, even though Obamacare did the exact same thing to Medicare. The American people deserve an honest, serious debate about the future of health care in our country. Unfortunately, they’re not getting it from Andy Slavitt.

This post was originally published in The Federalist.

What Killed the Senate Health Bill? Liberal Alarmism on Medicaid

The Senate health care bill is dead, and that’s at least in part due to overheated rhetoric from the left about Medicaid. Many of the over-the-top claims lacked important facts or context, and seemed primarily designed to scare people rather than prompt civil debate.

For instance, liberals claimed that Republican plans to reduce the growth of Medicaid spending by nearly $800 billion in the next decade would “unravel” the program, as Clinton administration labor secretary Robert Reich put it. Yet Obamacare did nearly the exact same thing to Medicare. Obamacare reduced Medicare spending by $716 billion, according to a 2012 Congressional Budget Office estimate. And it did so not to improve Medicare’s ability to pay for care for the next generation of seniors, but instead to fund new Obamacare entitlements.

The liberals who claimed this year’s Republican health bills would “cut” Medicaid are the same ones who endorsed Obamacare’s reductions in Medicare spending. Just look at AARP’s framing of the issue: When Democrats reduce Medicare spending by hundreds of billions of dollars, the organization calls it “taking steps to reduce waste, fraud, abuse, and inefficiency.” But when Republicans reduce Medicaid spending by roughly equivalent amounts, AARP decries “unsustainable cuts” to the program.

Likewise the issue of caps on spending. A group of health care advocacy organizations sent a letter to Capitol Hill last month expressing “grave concern about potential changes to the fundamental structure and purpose of Medicaid,” saying they “vehemently oppose converting Medicaid’s funding into a capped financing structure.”

But this objection to capped payments also seems ironic at best, and disingenuous at worst. Section 3403 of Obamacare imposed per capita caps on Medicare spending, to be enforced by the Independent Payment Advisory Board — a group of unelected bureaucrats. So why did many of the same organizations who claim they “vehemently oppose” capped funding for Medicaid, endorse a health care bill that created the same funding structure for Medicare? Is it because a Democratic president proposed the former change, and a Republican Congress is debating the latter?

Then there’s the alarm raised by Andy Slavitt, a former head of Medicare, Medicaid and the Affordable Care Act during the Obama administration. He recently claimed that Republicans had a secret plan “not just to cut Medicaid, but to allow states to eliminate it.” He said a “new waiver process” in the Senate bill — really a modification of an existing Obamacare waiver — would allow states to transfer Medicaid beneficiaries to private coverage, thereby allowing them to “eliminate” Medicaid.

Yet the Obamacare waiver process explicitly prohibits changes to Medicaid — and the Senate bill would not have changed that. In addition, states have always had the ability to “eliminate” Medicaid; the federal government can’t force states to participate in the program. That’s why Arizona didn’t join until 1982, nearly two decades after Medicaid’s creation. States have remained in Medicaid because the federal government provides significant funding to them for their programs — and that funding would continue to rise, albeit more slowly, under both the House and Senate bills.

To be sure, both sides have exhibited their share of political opportunism. Republicans shouldn’t have attacked Obamacare’s Medicare savings as “cuts” — a reduction in projected growth rates should never be considered a “cut” in government spending. And conservatives were guaranteed to reap the political whirlwind sooner or later.

But the left’s hyperbolic rhetoric, coupled with some pretty apparent hypocrisy, not only helped kill the Senate health bill. It did the American people a disservice by detracting from the debate on health care that our country deserves.

This post was originally published at USA Today.

Why Lindsay Graham’s “State Flexibility” Plan Falls Short

Shortly after more Republican senators announced their opposition to the current “repeal-and-replace” measure Monday evening, Sen. Lindsey Graham (R-SC) took to Twitter to promote his own health-care plan. He claimed that “getting money and power out of Washington and returning it to the states is the best hope for innovative health care,” adding that such moves were an “antidote to 1-SIZE FITS ALL approach embraced in Obamacare.”

There’s just one problem: Graham’s proposal doesn’t get power out of Washington, and it doesn’t fundamentally change the one-size-fits-all Obamacare approach. It also illustrates moderates’ selective use of federalism in the health-care debate, whereby they want other senators to respect their states’ decisions on Medicaid expansion, but want to dictate to other senators how those senators’ states should regulate health insurance.

Pre-Existing Conditions Are the Problem

A summary of Graham’s proposal claims it would block-grant current Obamacare funds to the states, ostensibly giving them flexibility. But the plan comes with a big catch: “The Obamacare requirements covering pre-existing conditions would be retained.”

When it comes to one of Obamacare’s costliest insurance regulations, Washington would still be calling the shots. That significant caveat echoes an existing waiver program under Obamacare, which in essence allows states to act any way they like on health care—so long as they’re implementing the goals of Obamacare. The Graham plan continues that tradition of fraudulent federalism of Washington using states as mere vassals accomplishing objectives it dictates, but perhaps with slightly more flexibility than under Obamacare itself.

This Is Not Repeal

As I have written before, the repeal debate comes down to an inconvenient truth for many Republicans: They can repeal Obamacare, or they can keep the status quo on pre-existing conditions—but they cannot do both. Keeping the requirements on pre-existing conditions necessitates many of the other Obamacare regulations and mandates, which necessitates subsidies (because otherwise coverage would become unaffordable for most Americans), which necessitates tax increases to pay for the subsidies—and you’re left with something approaching Obamacare, regardless of what you call it.

There’s no small amount of irony in moderates’ position on pre-existing conditions. Not only is it fundamentally incongruous with repeal—which most of them voted for only two years ago—but it’s fundamentally inconsistent with their position on Medicaid expansion as well. Why do senators like Lisa Murkowski want to protect their states’ decisions to expand Medicaid, yet dictate to other states how their insurance markets should function, by keeping regulation of health insurance at the federal level?

True Federalism the Solution

If senators—whether Graham, Murkowski, or others—want to promote federalism, then they should actually promote federalism. That means repealing all of the Obamacare mandates driving up premiums, and letting states decide whether they want to have Obamacare, a free-market system, or something else within their borders.

After all, New York did an excellent job running its insurance market into the ground through over-regulation well before Obamacare. It didn’t even need a guide from Washington. If states decide they like the Obamacare regulatory regime, they can easily re-enact it on the state level. But Washington politicians shouldn’t presuppose to arrogate that power to themselves.

In 1947, the McCarran-Ferguson Act codified a key principle of the Tenth Amendment, devolving regulation of health insurance to the states. Barring a few minor intrusions, Washington stayed out of the health insurance business for more than six decades—until Obamacare. It’s time to bring that principle of state regulation back, by repealing the Obamacare insurance regulations and restoring state sovereignty. Graham has the right rhetoric. Now he just needs the policy deeds to match his words.

This post was originally published at The Federalist.

UPDATED Summary of Senate Health Care Legislation

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

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

A full summary of the bill, as amended, follows below, along with possible conservative concerns where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

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

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

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I

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

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

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

Modifies the existing Obamacare subsidy regime, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

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

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

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

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

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

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

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

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses. Lowers revenues by a total of $19.2 billion over ten years.

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

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

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

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

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

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 through 2023.)

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

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

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

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

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

Non-Expansion State Funding:             Includes $10 billion ($2 billion per year) in funding for Medicaid non-expansion states, for calendar years 2018 through 2022. States can receive a 100 percent federal match (95 percent in 2022), up to their share of the allotment. A non-expansion state’s share of the $2 billion in annual allotments would be determined by its share of individuals below 138% of the federal poverty level (FPL) when compared to non-expansion states. This funding would be excluded from the Medicaid per capita spending caps discussed in greater detail below. Spends $10 billion over ten years.

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

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

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 billion over ten years.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. States that exceed their caps would have their federal match reduced in the following fiscal year.

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

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

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion. Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period.

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

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

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

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

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

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

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

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

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

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2019, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare. No separate budgetary impact noted; included in larger estimate of coverage provisions.

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

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

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

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

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

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

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

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

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

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Title III

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

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

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

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

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

On Health Care Bill, Federalism to the Rescue

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

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

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

The High Prices Are The Fault of Too Many Rules

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

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

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

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

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

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

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

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

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

This post was originally published at The Federalist.