Tag Archives: Treasury Department

Summary of House Republicans’ Latest Obamacare “Replace” Legislation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Legislative Summary

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary of House Republicans’ (Leaked) Discussion Draft

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

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

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

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

Title I—Energy and Commerce

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II—Ways and Means

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to Repeal Obamacare

A PDF version of this document is available here.

For years, the American people have suffered from the ill effects of Obamacare’s federal intrusions into the health care system. Millions of Americans received cancellation notices telling them that the plans they had, and liked, would disappear—a direct violation of President Obama’s repeated promises.[1] Insurance premiums have skyrocketed, rising nearly 50 percent in 2014, followed by another increase of over 20 percent this year.[2] Insurance options have disappeared, with Americans in approximately one-third of all U.S. counties having the “choice” of only one insurer in 2017.[3]

But as the 115th Congress begins, the new Republican majority, and President-elect Donald Trump, have pledged to bring the American people desperately needed relief, by fulfilling their long-stated promise to repeal Obamacare. Congressional leaders have stated their intention to bring forward legislation that repeals key portions of Obamacare using budget reconciliation procedures. Such legislation would likely resemble the reconciliation bill that the prior 114th Congress passed, but President Obama vetoed on January 8, 2016.

That legislation, H.R. 3762 of the last Congress, repealed funding for Obamacare’s new entitlements—Medicaid expansion to the able-bodied, and coverage subsidies for individuals of low and moderate incomes purchasing coverage on insurance Exchanges—effective January 1, 2018, approximately two years after enactment. It repealed all of the law’s tax increases—including the tax penalties associated with the individual and employer mandates—beginning January 1, 2016, effectively coinciding with the date of enactment. The bill also included other important provisions, restricting federal Medicaid payments to certain providers.[4]

Critics have argued that, having voted for this legislation once under President Obama, Members of Congress should not pass this bill again, sending it to President Trump’s desk for immediate signature.[5] These critics argue that Congress cannot repeal Obamacare’s costly insurance regulations under the special budget reconciliation procedures, which require all provisions in reconciliation legislation to have a significant budgetary impact. The critics fear that passing such legislation would effectively nullify Obamacare’s individual and employer mandates immediately, and its subsidies eventually, while keeping in place its costly insurance regulations that have significantly raised premiums. They believe that these steps would exacerbate adverse selection—a scenario whereby only sick individuals purchase health insurance coverage—de-stabilize insurance markets, and lead more insurers to drop out of insurance Exchanges altogether.

Those concerns, while legitimate, are misplaced on several fronts. First, Congress has not yet litigated whether or not some or all of the major Obamacare insurance regulations are budgetary in nature, and can be considered as part of reconciliation legislation. Second, Congress can and should take steps to modify last year’s reconciliation bill in ways that will stabilize insurance markets in the near-term, and create a transition to alternative legislation Congress constructs. Third, the incoming Trump Administration has significant regulatory powers within its purview, which can minimize the adverse selection effects critics fear from repeal legislation, and modify the federal mandates that have driven up premiums in recent years.

While not perfect, and less ideal than starting from scratch, last year’s reconciliation legislation represents a solid base from which to construct a legislative and regulatory framework for repealing Obamacare. It also represents the fastest approach for Congress to deliver on the promise it has made to its constituents for over six years: Unwinding an unaffordable and unworkable health care law.

What Congress Should Do

Last year’s reconciliation measure provides a good starting point for Congress when drafting repeal legislation to consider this year. However, Congress should attempt both to expand and revise the measure. These efforts would both mitigate against any adverse selection concerns, and stabilize insurance markets while Congress considers alternative legislation.

Expand Reconciliation to Insurance Regulations:               Critics have claimed that Obamacare’s major insurance regulations “were not altered in H.R. 3762; they could not be altered in a reconciliation bill taken up in 2017, either,” due to procedural restrictions inherent in the budget reconciliation process.[6] Such a definitive assertion is at best premature. Observers have noted that “Congress chose not to litigate” the issue of whether and what restrictions are budgetary in nature, and therefore eligible for repeal in reconciliation legislation, when considering H.R. 3762 in the fall of 2015.[7]

However, Congress can, and should, choose to litigate those issues with the Senate parliamentarian now. Rulings by the Senate parliamentarian will guide lawmakers as they determine which provisions of repeal legislation meet budget reconciliation guidelines, and can therefore be approved using a simple, 51-vote majority without being subject to the 60-vote threshold used for other legislation subject to a filibuster.

The Congressional Budget Office, think-tanks, and other actuarial organizations have produced estimates showing the significant costs of many of Obamacare’s insurance mandates—including requirements related to pre-existing conditions; essential health benefits; community rating requirements; actuarial value; medical loss ratios; preventive care coverage requirements; and other major mandates. The Obama Administration itself has produced cost estimates for several of the law’s mandates—and argued twice before the Supreme Court that its regulatory mandates are critical to the law’s structure.[8]

Congress can and should expand the scope of last year’s reconciliation bill to include the major insurance regulations. Doing so would be consistent with both the existing scoring estimates and past practice under budget reconciliation. Moreover, expanding the scope of repeal to include the largest insurance mandates would mitigate against adverse selection effects that might result if Congress repealed the individual mandate while leaving the major insurance regulations in place.

Freeze Enrollment in Entitlements:            Consistent with the transition period provided for in the 2015 reconciliation legislation, any repeal measure should also include steps to freeze enrollment in the law’s new entitlements. Such actions would be particularly pertinent to Obamacare’s massive expansion of Medicaid—the source of most of the law’s spending, and the vast majority of its coverage expansions.[9]

Research indicates that past states that froze enrollment in Medicaid allowed the vast majority of enrollees to transition off of the program, and into work, within a short period of time.[10] Moreover, another study published by the National Bureau of Economic Research concluded that Tennessee’s decision to roll back its unsustainable Medicaid expansion in 2005 led to “large increases in [the] labor supply” and increases in employment, as individuals dis-enrolled from Medicaid looked for—and obtained—employment, and employer-sponsored health insurance.[11] Freezing enrollment would hold existing beneficiaries harmless, while beginning to transition away from Obamacare’s unsustainable levels of spending—and encouraging economic activity and job growth.

Beginning this year, states that expanded Medicaid under Obamacare will also face added fiscal burdens, as they must finance a portion (in 2017, 5 percent) of the cost of coverage for the first time. Even Democratic state legislators in “blue states” like Oregon and New Mexico have raised concerns about what the cost of this massive expansion of Medicaid to the able-bodied will do to other important state programs targeting “the most vulnerable of our citizens.”[12] For all these reasons, Congress should insert language into the reconciliation freezing enrollment upon enactment—or perhaps shortly after enactment, to allow expansion states time to submit amendments to their existing state plans reflecting this legislative change.

Congress should also explore freezing enrollment in the law’s program of Exchange subsidies. In the spring of 2015, as the Supreme Court considered the case of King v. Burwell—which affected subsidies provided to individuals in states using the federal insurance Exchange, healthcare.gov—multiple Members of Congress introduced legislation that would have frozen enrollment. These bills would have allowed individuals who qualified for subsidies prior to the Court’s ruling to continue to receive them for a transitional period of time, but made other individuals ineligible for such subsidies.[13]

Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, ruling that the words “an Exchange established by the State” also referred to an Exchange run by the federal government, Congress could utilize a similar regime in the reconciliation bill with respect to insurance subsidies—that is, freezing eligibility and enrollment effective the date of the bill’s enactment.[14] However, Congress should only act to freeze eligibility for insurance subsidies if it believes doing so would not cause existing insurance market risk pools to deteriorate during the transition period.

Appropriate Cost-Sharing Subsidies:            Any repeal measure should include a temporary, time-limited appropriation for cost-sharing subsidies currently in dispute. Those subsidies reimburse insurers for the expense of cost-sharing reductions—lower deductibles and co-payments—provided to certain low-income enrollees under Obamacare. In the case of House v. Burwell, the House of Representatives has argued that the text of Obamacare nowhere provides an explicit appropriation for the cost-sharing subsidies, and that the Obama Administration violated the Constitution by funding this spending without an express appropriation.

On May 12, 2016, United States District Court Judge Rosemary Collyer agreed with the House’s position, imposing an injunction (stayed pending appeal) prohibiting the Administration from appropriating funds for the cost-sharing subsidies.[15] The Court of Appeals for the District of Columbia is currently considering the Obama Administration’s appeal of Judge Collyer’s ruling, with further actions on hold until the new Administration takes office.

Some insurers argue that, should the incoming Trump Administration withdraw the cost-sharing subsidies, they have the right to terminate their plans from the Exchanges immediately. The arguments that insurers can withdraw from the markets in 2017 lack merit.[16] Furthermore, analysts have warned for months that an incoming Administration could withdraw the cost-sharing subsidies unilaterally upon taking office.[17] Insurers saw fit to ignore those warnings, and signed up to offer 2017 coverage knowing full well that the cost-sharing subsidies could disappear on short notice, through either court rulings or regulatory action by a new Administration.

However, to provide certainty, Congress should appropriate funds for the cost-sharing subsidies as part of the repeal bill—but only for the length of the transition period provided for in that measure. The Trump Administration should encourage Congress to appropriate funds for the transition period. Once Congress does so, the Trump Administration’s Justice Department can move to dismiss the Obama Administration’s appeal of the case against the House of Representatives, conceding the point that the executive never had authority to appropriate funds for cost-sharing subsidies absent express direction by Congress.

Utilize the Congressional Review Act:            The election outcome notwithstanding, President Obama’s outgoing Administration continues to use the regulatory process to attempt to “box in” his successor. On December 22, 2016, the Administration published a Notice of Benefit and Payment Parameters for the 2018 plan year.[18] In doing so, the Administration specifically waived provisions of the Congressional Review Act, which generally requires a 60-day delayed effective date for major rules. The Department of Health and Human Services (HHS) claimed that such a delay was impracticable for good cause reasons.[19] The 2018 Notice of Benefit and Payment Parameters will therefore take effect 30 days following its display, on January 17, 2017—during President Obama’s last week in office. As a result, President Trump will be unable simply to revoke this regulation unilaterally upon taking office.

However, the Congressional Review Act does provide a vehicle for Congress, in concert with a President Trump, to take action revoking the newest Obamacare regulation. Specifically, the Act provides that a resolution of disapproval, passed by both houses of Congress, will have the effect of nullifying the rule or administrative action proposed.[20] Of particular import, the Congressional Review Act provides for expedited consideration of resolutions of disapproval in the Senate; those limits on debate preclude filibusters, meaning that resolutions of disapproval require a simple, 51-vote majority to pass, rather than the usual 60 votes for legislation subject to a filibuster.

Congress should explore using the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute 2018 Notice of Benefit and Payment Parameters. Regardless of whether or not Congress strikes down this last-minute rule, the Trump Administration should act expeditiously—including through use of the “good cause” exemption the Obama Administration cited to rush through its own regulations last month—to provide needed relief to consumers.

What the Administration Should Do

The Trump Administration can also play its part in bringing about the promise of repeal, by acting in concert with Congress to undo the effects of Obamacare’s major insurance mandates. Consistent with the actions Congress should take listed above, the incoming Administration should immediately use flexibility to provide relief from Obamacare’s regulatory regime. Whether through a new 2018 Notice of Benefit and Payment Parameters, a series of interim final regulations, or both, these regulations would provide a vehicle for incorporating many of the changes needed to undo Obamacare’s harmful effects, including those listed below.

While the Administration cannot unilaterally change the law—such actions lie solely within the purview of Congress—it can and should take steps to soften the impact of existing mandates, and provide maximum flexibility wherever possible. These steps would stabilize insurance markets during the period following repeal, and provide for an orderly transition to an alternative regime.

Limit Open Enrollment:      Obamacare gives the Secretary of HHS the authority to “require an Exchange to provide for…annual open enrollment periods, as determined by the Secretary for calendar years after the initial enrollment period.”[21] The law requires insurers to accept all applicants without regard to pre-existing conditions or health status—in industry parlance, guaranteed issue—but only within certain limits. Specifically, health insurers may “restrict enrollment in coverage described in such subsection [i.e., guaranteed issue coverage] to open or special enrollment periods.”[22] In other words, the requirement that insurers accept all applicants only applies during open enrollment periods—and the HHS Secretary has the sole power to determine when, and for how long, those open enrollment periods run.

The existing Code of Federal Regulations states that for the 2018 benefit year, open enrollment for individual health insurance will run from November 1, 2017 through January 31, 2018—the exact same three-month period as the 2016 and 2017 open enrollment periods.[23] The incoming Administration can—and should—issue new regulations limiting those open enrollment periods to a much narrower window, to prevent individuals from “gaming the system” and enrolling only after they incur costly medical conditions.

At minimum, it appears eminently reasonable for the new Administration to shorten the open enrollment window down to 30 days—a significant reduction from 2016 and 2017, which saw open enrollment last for one-quarter of the year. If logistical obstacles can be overcome—i.e., could Exchanges process applicants in a shorter period?—the Administration could restrict the open enrollment period even further, to a period of perhaps a couple of weeks. Other observers have suggested tying open enrollment to a period surrounding an individual’s birth date, thus preventing a surge of applicants at one particular point in the year.

Narrowing the length of open enrollment periods, coupled with restrictions on special enrollment periods outlined below, will provide a more controlled and contained environment for insurers to issue policies. Limiting enrollment periods will mitigate against an insurance market that requires carriers to issue policies without imposing financial penalties on individuals who fail to purchase insurance—indeed, will mitigate against the adverse selection insurers suffer from currently, even with the individual mandate in full effect. Because Obamacare gives the Secretary of HHS extremely broad authority to define “open enrollment periods”—other than stating these must occur annually, the statute includes few prescriptions on administrative authority—the Trump Administration should use this authority to maximum effect.

Restrict Special Enrollment Periods:            Insurers have raised numerous complaints about individuals using special periods outside open enrollment to obtain coverage, incur large medical claims, and then drop that coverage upon regaining health. Early in 2016, Blue Cross Blue Shield calculated that special enrollment period customers were 55 percent more costly than those enrolling during the usual annual enrollment period. Likewise, Aetna found that one-quarter of its entire enrollment came from these “special” enrollment periods, and that said enrollees remained on the rolls for an average of fewer than four months—an indication that many only enrolled in the first place to obtain coverage for a specific medical condition or ailment.[24]

Even as insurers demonstrate that individuals have abused special enrollment periods to incur costly medical bills and subsequently cancel coverage, the Obama Administration actually exacerbated the problem its last-minute 2018 Notice of Benefit and Payment Parameters. That rule expanded the number of special enrollment periods, codifying an additional five exemptions allowing eligible individuals to qualify for coverage outside of open enrollment periods.[25]

That said, the Obama Administration has taken some steps to restrict abuse of special enrollment periods. In June 2016, it implemented a process announced in February 2016, which requires documentation from applicants seeking special enrollment periods for the most common conditions—a move, loss of coverage, marriage, birth, or adoption.[26] The Centers for Medicare and Medicaid Services (CMS) claims this documentation requirement reduced the number of special enrollment period applicants by 20 percent.[27] However, a separate effort to require verification of special enrollment period eligibility prior to enrollment will not begin until this coming June, with results only coming in spring 2018.[28]

With respect to special enrollments, the incoming Administration should 1) eliminate all special enrollment periods, other than those required under existing law; and/or 2) accelerate the process of pre-enrollment verification for all special enrollment periods.[29]

Use Exchange User Fees to Lower Premiums:     In its Notice of Benefit Parameters, the Obama Administration has annually imposed a 3.5 percent surcharge, dubbed an “Exchange user fee,” on issuers offering coverage using healthcare.gov, the federally-run Exchange, which those insurers then pass on to consumers. The 2018 version of the document, released December 22, specifically suggested that the 3.5 percent fee paid by insurers (and ultimately by consumers) now exceeds the costs associated with running the federal Exchange:

We have received feedback suggesting that the FFEs [federally-facilitated Exchanges] would be able to increase enrollment by allocating more funds to outreach and education, a benefit to both consumers and issuers. We sought comment on how much funding to devote to outreach and education, and on whether HHS should expressly designate a portion or amount of the FFE user fee to be allocated directly to outreach and enrollment activities, recognizing the need for HHS to continue to adequately fund other critical Exchange operations, such as the call center, healthcare.gov, and eligibility and enrollment activities.[30]

Some commenters regarding the Exchange user fee proposal specifically requested that the Exchange “user fee rate should decrease over time.” HHS rejected this approach for 2018. It did note that “we do anticipate gaining economies of scale from functions with fixed costs, and if so, may consider reducing the FFE user fee based on increased enrollment and premiums in the future.”[31]

Upon taking office, the Trump Administration should act immediately to ensure that the Exchange user fee funds essential Exchange operations only. With the Exchanges now in their fourth year of operation, HHS will not need to spend as much on technological infrastructure as the Department did while standing up the Exchange—and should not, as the Obama Administration suggested, spend the difference on new “slush funds” designed to promote enrollment outreach.

Because the Exchange user fee is based on a percentage of premium, this year’s 20 percent spike in premiums for Obamacare plans has significantly increased funding for the federal Exchange as it is.[32] Moreover, the vast majority of Exchange participants—84 percent, per the most recent enrollee data—receive federal subsidies for their health insurance premiums.[33] Because those federal subsidies directly relate to premium costs, federal taxpayers—and not enrollees themselves—are in many cases paying for any additional, and unnecessary, spending undertaken by the federal Exchange.

To save taxpayers, and to lower premiums for all consumers, the Trump Administration should take immediate steps to reduce the Exchange user fee to the minimum necessary to support Exchange operations—and instruct insurers to rebate the difference to consumers in the form of lower premiums.

Revise Medical Loss Ratio:  Obamacare requires insurers to spend a minimum percentage of premiums on medical claims—a medical loss ratio (MLR).[34] Insurers in the individual market face an 80 percent MLR, while employer plans have an 85 percent requirement. Plans that do not meet the minimum MLR thresholds must return the difference to beneficiaries in the form of rebates.

During Obamacare’s first several years, the MLR requirements have not proven a concern to insurers—largely because they significantly under-estimated premiums for 2014, 2015, and 2016. In fact, the average MLR for individual market plans skyrocketed from 62.3% in 2011 to 93.3% in 2015.[35] Because enrollees proved sicker than anticipated, insurers have paid out a high percentage of premiums in medical claims—indeed, in some cases, have paid out more in claims than they received in premium payments from enrollees (i.e., an MLR over 100%).

However, should the Trump Administration desire to provide additional flexibility for insurers, it could take a more expansive view of “activities that improve health care quality,” considered equivalent to medical claims paid under the MLR formula.[36] Obamacare required the National Association of Insurance Commissioners (NAIC) to, by December 31, 2010, “establish uniform definitions of the activities” under the MLR, including the definition of activities to improve health care quality.[37] However, the statute makes those definitions “subject to the certification of the Secretary,” and while then-HHS Secretary Kathleen Sebelius accepted the NAIC recommendations, the new Administration is not necessarily obliged to do so.

The interim final rule regarding the medical loss ratio requirement provides a roadmap for a Trump Administration to provide regulatory flexibility regarding the MLR, including the definition of “activities that improve health care quality.”[38] The new Administration could also provide relief regarding agents’ and brokers’ fees and commissions—an issue HHS acknowledged in the rule, but did little to ameliorate—and taxes and fees paid by insurers due to regulatory and other requirements.

Reform State Innovation Waivers:            Section 1332 of Obamacare provides for “state innovation waivers,” which can take effect beginning on or after January 1, 2017. The waivers allow states to obtain exemptions from most of the law’s major insurance requirements, as well as the employer and individual mandates, to provide an alternative system of health insurance for its residents. However, the statute requires that any waiver must:

  1. “Provide coverage that is at least as comprehensive as the coverage” defined under the law, as certified by the Medicare actuary;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as the law;
  3. “Provide coverage to at least a comparable number of its residents;” and
  4. “Not increase the federal deficit.”[39]

The Obama Administration released a final rule regarding the process for applying for a Section 1332 waiver in early 2012.[40] However, it did not release information regarding the substance of the waivers themselves until late 2015—and then did so only through informal guidance, not a formal regulation subject to notice-and-comment.[41]

The December 2015 guidance exceeded the requirements of the statute in several ways. First, it said the Administration would not consider potential combined savings from a Section 1332 state innovation waiver when submitted in conjunction with a Medicaid Section 1115 reform waiver. In other words, when meeting the deficit neutrality requirement of Section 1332, Medicaid savings could not be used to offset higher costs associated with Exchange reforms, or vice versa.[42]

The guidance also said the Obama Administration would impose additional tests with respect to coverage and affordability—not just examining the impact on state populations as a whole, but effects on discrete groups of individuals.[43] For instance, the guidance noted that “waivers that reduce the number of people with insurance coverage that provides both an actuarial value equal to or greater than 60 percent and an out-of-pocket maximum that complies with Section 1302(c)(1) of [Obamacare] would fail” the affordability requirement.[44] These new mandates effectively prohibit states from using waiver programs to expand access to more affordable catastrophic coverage for individuals.

Due to the four statutory requirements listed above, the Section 1332 waiver program suffers from inherent shortcomings.[45] But because the added restrictions proposed in December 2015 came through informal regulatory guidance, the Trump Administration can and should immediately withdraw that guidance upon taking office. It should also work immediately to establish a more flexible rubric for states wishing to utilize Section 1332 waivers—with respect to both the application process itself and more flexible insurance design that can expand access and affordability for a state’s residents.

Withdraw Contraception Mandate:            Among the “early benefits” of the law taking effect six months after its enactment was a mandate for preventive care. Specifically, the law requires first-dollar coverage (i.e., without cost-sharing) of several preventive services, including women’s preventive health screenings.[46]

On December 20, 2016, the Health Resources and Services Administration (HRSA) released the most recent women’s preventive services guidelines. These guidelines, as before, required that “the full range of female-controlled U.S. Food and Drug Administration approved contraceptive methods, effective family planning practices, and sterilization procedures be available as part of contraceptive care.”[47]

The Trump Administration should upon taking office withdraw the HRSA benefit mandates—including the requirement to provide contraception coverage. While these particular mandates may have a slight impact on premiums, removing them would reduce premiums nonetheless. More importantly, they would restore the rights of conscience to those individuals and organizations who have been forced to violate their deeply-held religious beliefs to cover contraception and other procedures they object to.[48]

Modify Essential Health Benefits and Actuarial Value:        Among Obamacare’s many new mandated insurance benefits, two in particular stand out. First, the law provides for a series of “essential health benefits”—ten categories of health services that all qualified plans must cover.[49] While the essential health benefits address the breadth of health insurance coverage, actuarial value—or the percentage of annual health expenses paid by an insurance policy on average—addresses the depth of that coverage. The law categorizes individual health plans in four “tiers” based on actuarial value: Bronze plans with an average actuarial value of 60 percent; silver plans, 70 percent; gold plans, 80 percent; and platinum plans, 90 percent.[50]

Both directly and indirectly, the essential health benefits and actuarial value requirements raise premiums—by forcing individuals to buy richer coverage, and then by inducing additional demand for health care through that richer coverage. The Administration’s own rule regarding essential health benefits admitted that the law’s requirements include provisions not previously covered by most forms of health insurance, including “rehabilitative and habilitative services and devices.”[51] Likewise, a study in the journal Health Affairs concluded that the actuarial value requirements would raise premiums, as most pre-Obamacare individual market policies did not meet the new mandated benefit thresholds.[52]

However, the final rules regarding essential health benefits and plan actuarial value provide opportunities to expand benefit flexibility.[53] For instance, the new Administration could provide states with more options for declaring benchmark plans that meet the essential health benefit requirements under the statute. The new Administration could also expand the de minimis variation standards for actuarial value measures required by the law.[54] Allowing for additional variation and flexibility could have a significant impact in reducing premiums, as the Congressional Budget Office concluded in 2009 that the essential benefits and actuarial value standards would collectively raise premiums by 27 to 30 percent, all else equal.[55]

Enhanced Flexibility for Businesses:             On September 13, 2013, the Treasury Department issued Notice 2013-54, which stated that an arrangement whereby an employer reimburses some or all of an employee’s expenses for the purchase of individual health insurance—whether through a Health Reimbursement Arrangement (HRA) or some other means—would be considered a group health plan.[56] As a result, businesses using HRAs need to meet all of Obamacare’s regulatory reforms, such as prohibiting annual limits on the dollar value of essential health benefits.[57] Group health plans failing to meet those requirements trigger a penalty of $100 per day, per individual.[58]

This provision sparked widespread uproar when it first went into effect in July 2015, as the Obama Administration threatened fines of $36,500 per employee for employers who helped fund their employees’ health coverage.[59] Members of Congress introduced standalone legislation exempting small businesses from this requirement.[60] This provision was eventually incorporated into the 21st Century Cures Act, which President Obama himself signed into law on December 13, 2016.[61] As a result, small businesses with under 50 employees can now provide contributions to their workers’ individual health insurance premiums without triggering Obamacare’s regulatory regime.

Expanding upon the precedent of a law President Obama himself signed, the Trump Administration should withdraw Notice 2013-54, build on Congress’ actions, and allow businesses of all sizes the ability to reimburse employees’ premium costs without triggering massive fines. Actions in this vein would have salutary benefits in two respects: They would remove more businesses from Obamacare’s onerous regulatory requirements, while encouraging the use of defined contribution health insurance for employees.

Next Steps and the Pathway Forward

Following more than six years of frustration for the American people, the promise of repealing Obamacare is finally within reach. While passing legislation that unwinds Obamacare in an orderly, stable manner will require policy-makers to act with care, Congress and the new Trump Administration can use last year’s reconciliation legislation as the basis for action. Specifically, Congress should:

  • Seek to expand the scope of last year’s reconciliation legislation to encompass Obamacare’s major insurance regulations, consistent with budgetary scores and past practice and precedents within the Senate;
  • Add a provision to last year’s reconciliation legislation freezing enrollment in Medicaid expansion, effective either upon enactment or shortly thereafter;
  • Explore adding a provision to last year’s reconciliation legislation freezing enrollment in Exchange subsidies, provided doing so will not de-stabilize insurance markets;
  • Appropriate funds for the cost-sharing subsidies in reconciliation legislation, but only for the defined length of the Obamacare transition period; and
  • Explore use of the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute Notice of Benefit and Payment Parameters for 2018.

Likewise, the Trump Administration can take several regulatory steps to enhance flexibility and provide certainty during the transition period:

  • Limit annual open enrollment to the shortest period feasible, and in no case longer than one month;
  • Restrict the use of special enrollment periods, by withdrawing all those added by the Obama Administration and not included in statute, and/or requiring pre-enrollment verification for all special enrollment periods;
  • Provide that, for states using the federal Exchange, any portion of the 3.5 percent Exchange user fee not used to cover annual operating costs be refunded to enrollees, thus lowering their premiums;
  • Revise the medical loss ratio requirements to provide more flexibility for insurers;
  • Immediately withdraw the December 2015 guidance regarding Section 1332 state innovation waivers, and provide maximum flexibility within the existing statutory requirements for states seeking to mitigate the harmful effects of Obamacare’s insurance mandates;
  • Withdraw the contraception mandate that raises premiums and hinders freedom of conscience;
  • Modify essential health benefits and actuarial value requirements to provide maximum flexibility within the statutory framework;
  • Expand upon Congress’ efforts allowing small businesses to reimburse their employees’ health insurance premiums without facing massive fines, by withdrawing the September 2013 IRS notice and extending flexibility to as many employers as possible; and
  • Drop the Obama Administration’s appeal of House v. Burwell once Congress provides a temporary, time-limited appropriation for cost-sharing subsidies as part of the repeal reconciliation bill.

Collectively, this menu of actions would help to unwind most of Obamacare’s harmful effects, provide for an orderly transition, and pave the way for Congress to consider and pass alternative legislation designed to lower health care costs. The promise of Obamacare repeal is within reach; it’s time for Congress and the new Administration to seize it.



[1] “Policy Notifications and Current Status, by State,” Associated Press December 26, 2013, http://finance.yahoo.com/news/policy-notifications-current-status-state-204701399.html; Angie Drobnic Holan, “Lie of the Year: ‘If You Like Your Health Care Plan, You Can Keep It,’” Politifact December 12, 2013, http://www.politifact.com/truth-o-meter/article/2013/dec/12/lie-year-if-you-like-your-health-care-plan-keep-it/.

[2] Drew Gonshorowski, “How Will You Fare in the Obamacare Exchanges?” Heritage Foundation Issue Brief No. 4068, October 16, 2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchanges-how-will-your-health-insurance-fare; Department of Health and Human Services, “Health Plan Choice and Premiums in the 2017 Health Insurance Marketplace,” ASPE Research Brief, October 24, 2016, https://aspe.hhs.gov/sites/default/files/pdf/212721/2017MarketplaceLandscapeBrief.pdf.

[3] Cynthia Cox and Ashley Semanskee, “Preliminary Data on Insurer Exits and Entrants in 2017 Affordable Care Act Marketplaces,” Kaiser Family Foundation, August 28, 2016, http://kff.org/health-reform/issue-brief/preliminary-data-on-insurer-exits-and-entrants-in-2017-affordable-care-act-marketplaces/.

[4] Section 206 of H.R. 3762 had the effect of preventing Medicaid plans from providing reimbursements to certain providers, including Planned Parenthood.

[5] Joe Antos and Jim Capretta, “The Problems with ‘Repeal and Delay,’” Health Affairs January 3, 2017, http://healthaffairs.org/blog/2017/01/03/the-problems-with-repeal-and-delay/.

[6] Ibid.

[7] Paul Winfree and Brian Blase, “How to Repeal Obamacare: A Roadmap for the GOP,” Politico November 11, 2016, http://www.politico.com/agenda/story/2016/11/repeal-obamacare-roadmap-republicans-000230.

[8] Ibid.

[9] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5; Edmund Haislmaier and Drew Gonshorowski, “2015 Health Insurance Enrollment: Net Increase of 4.8 Million, Trends Slowing,” Heritage Foundation Issue Brief No. 4620, October 31, 2016, http://thf-reports.s3.amazonaws.com/2016/IB4620.pdf.

[10] Jonathan Ingram, Nic Horton, and Josh Archambault, “Welfare to Work: How States Can Unwind Obamacare Expansion and Restore the Working Class,” Forbes December 3, 2014, http://www.forbes.com/sites/theapothecary/2014/12/03/welfare-to-work-how-states-can-unwind-obamacare-expansion-and-restore-the-working-class/#455cad6923ec.

[11] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[12] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[13] See for instance Section 4 of Winding Down Obamacare Act, S. 673 (114th Congress), by Sen. Ben Sasse (R-NE), and Section 4(b) of Preserving Freedom and Choice in Health Care Act, S. 2016 (114th Congress), by Sen. Ron Johnson (R-WI).

[14] King v. Burwell, 576 U.S. __ (2015).

[15] United States District Court for the District of Columbia, Civil Action No. 14-1967, House v. Burwell, ruling by Judge Rosemary Collyer, May 12, 2016, https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.

[16] The contract between CMS and insurers on the federal Exchange notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw if they are not. However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause was poorly drafted by insurers’ counsel, and therefore has no applicability to House v. Burwell; insurers have no ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers. See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.

[17] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies for Insurers?” Wall Street Journal May 5, 2016, http://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.

[18] Department of Health and Human Services, interim final rule regarding “2018 Notice of Benefit and Payment Parameters,” Federal Register December 22, 2016, https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf.

[19] Ibid., pp. 94159-60.

[20] 5 U.S.C. 802. For more information, see Maeve Carey, Alissa Dolan, and Christopher Davis, “The Congressional Review Act: Frequently Asked Questions,” Congressional Research Service Report R43992, November 17, 2016, https://fas.org/sgp/crs/misc/R43992.pdf.

[21] 42 U.S.C. 13031(c)(6)(B), as codified by Section 1311(c)(6)(B) of Patient Protection and Affordable Care Act, P.L. 111-148.

[22] Section 2702(b)(1) of the Public Health Service Act, 42 U.S.C. 300gg-1(b)(1), as modified by Section 1201(2)(A) of PPACA.

[23] 45 C.F.R. 155.410(e)(2).

[24] Paul Demko, “Gaming Obamacare,” Politico January 12, 2016, http://www.politico.com/story/2016/01/gaming-obamacare-insurance-health-care-217598.

[25] 2018 Notice of Benefit and Payment Parameters, pp. 94127-31.

[26] Centers for Medicare and Medicaid Services, “Fact Sheet: Special Enrollment Confirmation Process,” February 24, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-02-24.html.

[27] Centers for Medicare and Medicaid Services, “Pre-Enrollment Verification for Special Enrollment Periods,” https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/pre-enrollment-sep-fact-sheet-final.pdf.

[28] Ibid.

[29] 42 U.S.C. 13031(c)(6)(C), as codified by Section 1311(c)(6)(C) of PPACA, requires the Secretary to establish special enrollment periods for individual coverage as specified by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) for group coverage, codified at 26 U.S.C. 9801.

[30] 2018 Notice of Benefit and Payment Parameters, p. 94138.

[31] Ibid., p. 94138.

[32] HHS published an average 2017 premium increase for healthcare.gov states of 25 percent, and a median increase of 16 percent. See HHS, “Health Plan Choice and Premiums in 2017,” Table 2, p. 6.

[33] Centers for Medicare and Medicaid Services, “First Half of 2016 Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[34] Section 2718 of the Public Health Service Act, 42 U.S.C. 300gg-18, as revised by PPACA Sections 1001(1) and 10101(f).

[35] Centers for Medicare and Medicaid Services, “The 80/20 Rule Increases Value for Consumers for Fifth Year in a Row,” November 18, 2016, https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Medical-Loss-Ratio-Annual-Report-2016-11-18-FINAL.pdf.

[36] Section 2718(a)(3) of the Public Health Service Act, 42 U.S.C. 300gg18(a)(3), as revised by PPACA Sections 1001(1) and 10101(f).

[37] Section 2718(c) of the Public Health Service Act, 42 U.S.C. 300gg-18(c), as revised by PPACA Sections 1001(1) and 10101(f).

[38] Department of Health and Human Services, interim final rule regarding “Implementing Medical Loss Ratio Requirements under the Patient Protection and Affordable Care Act,” Federal Register December 1, 2010, https://www.gpo.gov/fdsys/pkg/FR-2010-12-01/pdf/2010-29596.pdf.

[39] 42 U.S.C. 18052(b)(1)(A), as codified by Section 1332(b)(1)(A) of PPACA.

[40] Departments of Treasury and Health and Human Services, final rule regarding “Application, Review, and Reporting Process for Waivers for State Innovation,” Federal Register February 27, 2012, https://www.gpo.gov/fdsys/pkg/FR-2012-02-27/pdf/2012-4395.pdf.

[41] Departments of Treasury and Health and Human Services, guidance regarding “Waivers for State Innovation,” Federal Register December 16, 2015, https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31563.pdf.

[42] Ibid., p. 78134.

[43] Ibid., p. 78132.

[44] Ibid., p. 78132.

[45] Chris Jacobs, “What’s Blocking Consensus on Health Care?” Wall Street Journal July 17, 2015, http://blogs.wsj.com/washwire/2015/07/17/whats-blocking-consensus-on-health-care/.

[46] Section 2713 of the Public Health Service Act, 42 U.S.C. 300gg-13, as revised by PPACA Section 1001(1).

[47] Health Resources and Services Administration, “Women’s Preventive Services Guidelines,” December 20, 2016, https://www.hrsa.gov/womensguidelines2016/index.html.

[48] United States Conference of Catholic Bishops, “The HHS Mandate for Contraception/Sterilization Coverage: An Attack on Rights of Conscience,” January 20, 2012, http://www.usccb.org/issues-and-action/religious-liberty/conscience-protection/upload/preventiveqanda2012-2.pdf.

[49] 42 U.S.C. 18022, as codified by Section 1302 of PPACA.

[50] 42 U.S.C. 18022(d), as codified by Section 1302(d) of PPACA.

[51] Department of Health and Human Services, final rule on “Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation,” Federal Register February 25, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf, pp. 12860-61.

[52] Jon Gabel, et al., “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold through Exchanges as of 2014,” Health Affairs May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.abstract.

[53] HHS, final rule on “Essential Health Benefits and Actuarial Value.”

[54] 42 U.S.C. 18022(d)(3), as codified by Section 1302(d)(3) of PPACA.

[55] Congressional Budget Office, letter to Sen. Evan Bayh regarding health insurance premiums, November 30, 2009, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-30-premiums.pdf, pp. 9-10.

[56] Internal Revenue Service, Notice 2013-54, September 13, 2016, https://www.irs.gov/pub/irs-drop/n-13-54.pdf.

[57] Section 1563(f) of PPACA added Section 9815 to the Internal Revenue Code, which incorporated most of the regulatory requirements of the law to group health plans.

[58] 26 U.S.C. 4980D(b)(1).

[59] Grace-Marie Turner, “Small Businesses Threatened with $36,500 IRS Fines for Helping Employees with Health Costs,” Forbes June 30, 2016, http://www.forbes.com/sites/gracemarieturner/2015/06/30/small-businesses-threatened-with-36500-irs-fines-for-helping-employees-with-health-costs/#53750b3d4a0e.

[60] The Small Business Healthcare Relief Act, introduced by Reps. Charles Boustany (R-LA) and Mike Thompson (D-CA), H.R. 2911 of the 114th Congress; a companion measure was introduced by Sens. Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND) as S. 1697 of the 114th Congress.

[61] Section 18001 of 21st Century Cures Act, P.L. 114-255.

Four Ways Donald Trump Can Start Dismantling Obamacare on Day One

Having led a populist uprising that propelled him to the presidency, Donald Trump will now face pressure to make good on his campaign promise to repeal Obamacare. However, because President Obama used executive overreach to implement so much of the law, Trump can begin dismantling it immediately upon taking office.

The short version comes down to this: End cronyist bailouts, and confront the health insurers behind them. Want more details? Read on.

1. End Unconstitutional Cost-Sharing Subsidies

In May, Judge Rosemary Collyer ruled in a lawsuit brought by the House of Representatives that the Obama administration had illegally disbursed cost-sharing subsidies to insurers without an appropriation. These subsidies—separate and distinct from the law’s premium subsidies—reimburse insurers for discounted deductibles and co-payments they provide to some low-income beneficiaries.

While the text of the law provides an explicit appropriation for the premium subsidies, Congress nowhere granted the executive authority to spend money on the cost-sharing subsidies. President Obama, ignoring this clear legal restraint, has paid out roughly $14 billion in cost-sharing subsidies anyway.

Trump should immediately 1) revoke the Obama administration’s appeal of Collyer’s ruling in the House’s lawsuit, House v. Burwell, and 2) stop providing cost-sharing subsidies to insurers unless and until Congress grants an explicit appropriation for same.

2. Follow the Law on Reinsurance

House v. Burwell represents but one case in which legal experts have ruled the Obama administration violated the law by bailing out insurers. In September, the Government Accountability Office (GAO) handed down a ruling in the separate case of Obamacare’s reinsurance program.

The law states that, once reinsurance funds come in, Treasury should get repaid for the $5 billion cost of a transitional Obamacare program before insurers receive reimbursement for their high-cost patients. GAO, like the non-partisan Congressional Research Service before it, concluded that the Obama administration violated the text of Obamacare by prioritizing payments to insurers over and above payments to the Treasury.

Trump should immediately ensure that Treasury is repaid all the $5 billion it is owed before insurance companies get repaid, as the law currently requires. He can also look to sue insurance companies to make the Treasury whole.

3. Prevent a Risk Corridor Bailout

In recent weeks, the Obama administration has sought to settle lawsuits raised by insurance companies looking to resolve unpaid claims on Obamacare’s risk corridor program. While Congress prohibited taxpayer funds from being used to bail out insurance companies—twice—the administration apparently wishes to enact a backdoor bailout prior to leaving office.

Under this mechanism, Justice Department attorneys would sign off on using the obscure Judgment Fund to settle the risk corridor lawsuits, in an attempt to circumvent the congressional appropriations restriction.

Trump should immediately 1) direct the Justice Department and the Centers for Medicare and Medicaid Services (CMS) not to settle any risk corridor lawsuits, 2) direct the Treasury not to make payments from the Judgment Fund for any settlements related to such lawsuits, and 3) ask Congress for clarifying language to prohibit the Judgment Fund from being used to pay out any settlements related to such lawsuits.

4. Rage Against the (Insurance) Machine

Trump ran as a populist against the corrupting influence of special interests. To that end, he would do well to point out that health insurance companies have made record profits, nearly doubling during the Obama years to a whopping $15 billion in 2015. It’s also worth noting that special interests enthusiastically embraced Obamacare as a way to fatten their bottom lines—witness the pharmaceutical industry’s “rock solid deal” supporting the law, and the ads they ran seeking its passage.

As others have noted elsewhere, if Trump ends the flow of cost-sharing subsidies upon taking office, insurers may attempt to argue that legal clauses permit them to exit the Obamacare exchanges immediately. Over and above the legal question of whether CMS had the authority to make such an agreement—binding the federal government to a continuous flow of unconstitutional spending—lies a broader political question: Would insurers, while making record profits, deliberately throw the country’s insurance markets into chaos because a newly elected administration would not continue paying them tribute in the form of unconstitutional bailouts?

For years, Democrats sought political profit by portraying Republicans as “the handmaidens of the insurance companies.” Anger against premium increases by Anthem in 2010 helped compel Democrats to enact Obamacare, even after Scott Brown’s stunning Senate upset in Massachusetts. It would be a delicious irony indeed for a Trump administration to continue the political realignment begun last evening by demonstrating to the American public just how much Democrats have relied upon crony capitalism and corrupting special interests to enact their agenda. Nancy Pelosi and K Street lobbyists were made for each other—perhaps it only took Donald Trump to bring them together.

This post was originally published at The Federalist.

What Blue Cross Blue Shield Didn’t Tell You About Reinsurance

An hour ago, the Blue Cross Blue Shield Association released a blast e-mail to Hill staff trying to justify their support for Obamacare’s reinsurance bailout. The full e-mail is pasted below, but here is a quick fact check of their claims:

CLAIM: “Health plans were required to reduce their premiums based on the federal reinsurance rules in place.”

FACT: What this talking point fails to mention is that reinsurance “assessments” — $63 per person in 2014, $44 in 2015, and $27 this year — RAISED premiums for the majority of Americans with employer-provided health plans — 175 million in 2014 — so that a select few individuals with Exchange coverage could have slightly lower rates.  Raising premiums for some people to lower people for others is “spreading the wealth around,” to use Barack Obama’s famous phrase — but it doesn’t lower underlying health costs, and it doesn’t represent the $2,500 in lower premiums Barack Obama repeatedly promised.

CLAIM: “The transitional reinsurance program receives no federal funds.”

FACT: The reinsurance program uses the coercive power of the federal government to collect the dollars — making them federal funds.  Even the BCBS-distributed literature admits reinsurance funds were collected by “assessments” — i.e., a non-voluntary requirement on all health plans to pay the federal government.

Most federal entitlement programs — Social Security, Medicare, welfare, food stamps — are by their nature redistributive, taking money from some people and giving them to others.  Do Republicans believe THOSE programs do not represent “federal funds?”  Of course not.  The same principle applies here.  Or do BCBS representatives believe all Americans with employer plans would willingly pay $63 per year in higher premiums to help out their friendly health insurers?

CLAIM: “Reinsurance payments to health plans have been below the amounts specified in the statute.”

FACT: This claim misses two points.  First, on a per-enrollee basis, insurers in 2014 received nearly 50% more in reinsurance funds than they assumed when setting premiums for that year. And you don’t have to take my word for it — that conclusion comes from a paper released by the Commonwealth Fund, not exactly a bastion of conservatism.

Second, in 2014 the federal Treasury received exactly ZERO dollars from the reinsurance program — even though the Congressional Research Service and other independent experts have said the law is clear: The Treasury Department, and NOT insurers, stand first in priority for reinsurance assessment funds.

CLAIM: “The privately funded reinsurance program reduced costs for taxpayers.”

FACT: First, because the Obama Administration illegally prioritized insurers over the Treasury as explained above, the reinsurance program stands to stiff taxpayers out of billions of dollars in repayments.  Second, any supposed reduction in the cost of federal insurance subsidies came solely as a result of “assessments” — i.e., taxes — on employer-provided health plans.  Whether taxpayers pay as a result of a front-end reinsurance “assessment” or as a result of the back-end cost of federal insurance subsidies is essentially immaterial — a tax is a tax is a tax.

The fact of the matter remains: The reinsurance program remains an illegally-manipulated system of corporate welfare, and insurers are fighting to retain money that legally belongs in the Treasury.  It’s worth noting that nowhere in the BCBS documents do the Blues even attempt to argue the legality of the program as rejiggered by the Obama Administration.  Their argument to Congress therefore amounts to, essentially, “We stole that money fair and square!”

Members of Congress who want to 1) stand on the side of taxpayers, 2) oppose crony capitalism, and 3) oppose Obamacare should support every attempt to reclaim funds from the reinsurance program — and prevent a risk corridor bailout.

From: ”Pray, Jason”
Date: September 7, 2016 at 11:11:55 AM EDT
To: ”Pray, Jason”
Subject: H.R.5904 – Taxpayers Before Insurers Act

Hi everyone – I hate to come out of the post-recess box like this but, in the strongest possible terms, we encourage your office to not get on this bill as a cosponsor.

In short – Congress should oppose efforts to eliminate or limit the ACA reinsurance program; here are facts about the program:

• Health plans were required to reduce their premiums based on the federal reinsurance rules in place;

• The transitional reinsurance program receives no federal funds;

• Reinsurance payments to health plans have been below the amounts specified in the statute; and

• The privately funded reinsurance program reduced costs for taxpayers.

Limiting or eliminating the reinsurance program simply amounts to a retroactive tax on insurance companies and higher premiums going forward.

Please see the attached documents and feel free to contact me with any questions.

-          Jason

Jason Pray

Executive Director, Congressional Relations

BlueCross & BlueShield Association

Democrats’ Priorities: Obamacare or Zika?

If Nero was the emperor who fiddled while Rome burned, Barack Obama must surely qualify as the president who dithered while his signature initiative rapidly crumbled. Despite a public-health emergency in sections of the southern United States, the president seems more interested in shoveling money to insurers than in stopping the threat from the Zika virus.

Last week the New York Times reported that the Obama administration was attempting yet another Obamacare relaunch, this one including a federally funded “advertising campaign featuring newly insured individuals, as well as direct appeals to young people hit by tax penalties this year for failing to enroll.” With enrollment in the law’s exchanges well below original estimates, insurers leaving in droves, and premiums ready to spike, the move seems to be a desperate attempt to increase sign-ups and keep insurers at the Obamacare table.

But the timing of the announcement could not be more incongruous. Even as the Department of Health and Human Services wastes taxpayer dollars to promote yet again a measure enacted into law six years ago — on which public opinion has remained decidedly stable (and negative) — HHS also claims that it desperately needs additional funding to fight the Zika virus. Senate Majority Leader Mitch McConnell wrote to HHS on Friday to ask why the agency’s leaders  believe that taxpayer dollars “would be better spent propping up the failed Obamacare exchanges than other important public health priorities — such as preventing the spread of Zika.”

The fact remains, however, that HHS’s top priority is propping up the failed Obamacare experiment — a bigger priority than obeying the text of Obamacare itself. The non-partisan Congressional Research Service and other outside experts have concluded that, in implementing Obamacare’s reinsurance program, the administration violated the law by prioritizing payments to insurers over payments to the Treasury. As a result, insurers will receive billions of dollars in extra funding that legally should be returned to taxpayers.

To sum up the situation: The Obama administration is funneling billions of dollars to “greedy” insurers that Democrats hate, while Nancy Pelosi and other Democrats have called for Congress to return from its recess to pass billions of dollars in spending to fight Zika. There is, however, an easy win-win solution: Use the reinsurance funds to pay for the new Zika spending, rather than giving insurance companies another Obamacare bailout.

The Zika conference report that the House passed in June did pay for new spending on the virus by rescinding some unspent Obamacare funds. Two-thirds of the funds rescinded, however ($543 million in total), came from an account used to establish Obamacare exchanges in United States territories. With exchanges having been established for years, this “rescission” amounts to Congress agreeing not to spend money that was never going to be spent anyway — a “pay for” on paper rather than in reality.

By contrast, utilizing reinsurance funds to finance Zika spending would represent a legitimate savings to taxpayers. Such a move would reclaim billions of dollars that otherwise would have been (unlawfully) diverted to insurance companies — some of which would fund the new Zika spending, and some of which would be returned to the taxpayers to whom the funds belonged in the first place.

Using reinsurance dollars to fund a Zika package would be not only good policy but good politics as well. Most Americans would put the health of infants and pregnant women over the health of insurance companies’ bottom lines — and so should Congress. If Democrats wish to defend crony capitalism and corporate-welfare payments to insurers, that is their right. But particularly after the premium spikes hit this fall, few may wish to do so.

As the old saying goes, to govern is to choose. Senator McConnell rightly pointed out last week that this administration has prioritized its failed Obamacare experiment over protecting Americans from the Zika virus. When it comes to finding any new source to pay for new Zika spending, ending Obamacare’s reinsurance bailout should stand at the top of the priority list.

This post was originally published at National Review.

An Important Test in the Fight Against Obamacare Bailouts

On Wednesday, a House Republican task force is scheduled to release its recommendations regarding a health-care alternative that Congress and a new president can enact next year. It’s an important step in the fight against Obamacare, but a much more immediate, though less publicized, battle will also occur this week — one over the use of the Judgment Fund to pay out certain claims or settlements. This fight will test whether House Republicans can take concrete actions to undermine Obamacare.

The battle will occur in an unlikely venue: Consideration of the Financial Services and General Government appropriations measure, expected on the House floor beginning Wednesday. With that piece of legislation, the House can pass a provision I’ve written about recently at NRO: a prohibition on the use of the Judgment Fund to pay out rewards related to “risk corridor” lawsuits.

Some background on the issue, and the lawsuits: Risk corridors are one of two transitional programs designed to cushion insurers’ losses in Obamacare’s first three years. Through risk corridors, plans achieving high profits on insurance exchanges in the years 2014–16 would forfeit some of those gains, which would subsidize insurers who suffered large losses. At least, that’s the way it was supposed to work.

The reality has proven far different. While the administration repeatedly claimed that risk corridors would be budget-neutral — that is, payments to insurers with losses would equal payments into the system by insurers with gains — that hasn’t happened and isn’t likely to happen. The balky insurance exchanges, the administration’s unilateral change allowing some individuals to keep their pre-Obamacare insurance temporarily, and enrollment by sicker-than-average individuals all mean that insurers have lost billions selling Obamacare plans. As a result, insurers put in claims totaling $2.87 billion for 2014, asking the government to reimburse them. But because few insurers made profits, plans had paid only $362 million into the risk-corridor program, meaning that the administration could pay only 12.6 percent of the risk-corridor payment requests in 2014.

In a November 2015 memo, the Obama administration stated that the $2.5 billion in unpaid 2014 risk-corridor claims represented an outstanding obligation of the federal government. But an appropriations restriction enacted by Congress in 2015 prevents the Centers for Medicare and Medicaid Services (CMS), which manages Obamacare and the exchanges, from using additional taxpayer funds on unpaid risk-corridor claims.

Here’s where the Judgment Fund comes in. Multiple insurers have filed lawsuits seeking their unpaid risk-corridor claims from the federal government. The Obama administration, while sympathetic to their case, remains hamstrung by the language that prohibits CMS from bailing out insurers. But the Judgment Fund — administered by the Treasury, not CMS — currently contains no such restriction.

And that’s why the Financial Services appropriations bill this week matters in the fight against Obamacare. Enacting a restriction on the use of the Judgment Fund to pay any claims or settlements related to the risk-corridor lawsuits would prevent the Obama administration from using the fund as a back-door insurer bailout. Democrats have essentially encouraged the administration to do just that — settle the cases, pay the claims from the Treasury to circumvent the prohibition on a CMS-funded bailout, and give insurers a big, wet, multi-billion-dollar, taxpayer-funded kiss.

While Congress has multiple policy justifications — an aversion to both bailouts and Obamacare — to prohibit the use of the Judgment Fund to pay risk-corridor claims, it also has constitutional prerogatives to protect. The text of Obamacare nowhere contained an explicit appropriation for risk corridors, which is one reason CMS had to create a system by which incoming funds from some insurers had to finance funds outgoing to others. Then Congress went even further and explicitly included a prohibition on taxpayer-funded bailouts. Congress did this not once, but twice: first in December 2014 and then again last winter.

The Obama administration would like nothing better than to chuck those explicit congressional restrictions out the window and use the Judgment Fund to bail out its Obamacare partners-in-crime, Big Insurance. While the Congressional Research Service and the Comptroller General of the Government Accountability Office have both ruled that the Judgment Fund cannot be used to spend money where Congress has explicitly declined to appropriate funds, the House should not rest on its laurels and assume that this imperial president will follow the guidance of these nonpartisan experts. It can, and should, go further to protect taxpayer funds and rein in the administration.

Even as it unveils its alternative to the law, House Republicans have the chance to take a critically important step to undermine Obamacare this week. Both to save the country from Obamacare and to preserve its constitutional power of the purse, the House should match deeds with words and prevent the Judgment Fund from being used for a multi-billion-dollar Obamacare bailout.

This post was originally published at National Review.

How to Stop the Obamacare Bailouts

In the coming decade, actions set in motion by the Obama administration could cost the American taxpayer over $170 billion in publicly funded health-insurance-company bailouts — a scandal I described in detail in these pages last week. Fortunately for taxpayers, however, a future administration could shut off the gushing taps of bailout dollars that President Obama has turned on. Because the bailouts in large part revolve around unilateral administration actions — decisions solely made by the executive, without even the notice-and-comment process used in normal rulemaking — the next administration could reverse those actions almost as quickly as they were introduced.

By taking the steps below, a Republican administration could preserve taxpayer funds — and restore the separation of powers this administration has so badly damaged.

RISK CORRIDORS 

One of two transitional programs for Obamacare insurers, risk corridors were designed to provide stability in the law’s early years — insurers with large profits would pay in some of their gains to reduce shortfalls by carriers with large losses. However, because insurers have lost money hand-over-fist on Obamacare exchanges, claims by loss-making insurers seeking payments have greatly exceeded receipts taken in by profit-making insurers. Congress has thus far prevented the Centers for Medicare and Medicaid Services (CMS) from using taxpayer funds to bail out the risk corridors, but insurers are taking legal action seeking unpaid risk-corridor funds as a result.

Action: Revoke the Administration Memo Declaring a Unilateral Bailout: In November, CMS issued a short memo noting that, in 2014, insurers requested $2.87 billion in risk-corridor payments, but because other insurers only paid in $362 million to risk corridors, the administration could only pay 12.6 percent of 2014 payment requests. The memo stated that the $2.5 billion in unpaid payments represent an “obligation of the United States Government for which full payment is required.”

The memo conceded that Congress had provided no appropriation for the $2.5 billion in risk-corridor shortfalls — indeed, Congress had specifically enacted language prohibiting CMS from spending additional taxpayer funds on risk-corridor payments. CMS had no authority to issue such a memo — and the next administration should revoke it.

Action: Refuse to Settle Risk-Corridor Lawsuits — and Refuse to Pay Claims: Insurers have filed several lawsuits seeking to collect their unpaid risk-corridor funds — lawsuits that the Obama administration will be inclined to settle. Congress prohibited CMS from using taxpayer funds to pay risk-corridor claims — but a legal settlement would be paid from the Judgment Fund of the Treasury, allowing the administration to circumvent the appropriations restrictions.

The Obama administration may, in its final days after November’s elections, attempt to settle the insurer lawsuits by paying risk-corridor claims from the Judgment Fund. Such an action would contradict opinions of the Congressional Research Service (CRS) and the Government Accountability Office (GAO). Both organizations have stated their belief that the Judgment Fund cannot be used to spend money on accounts and programs where Congress itself has declined to appropriate funds. Particularly given the views of these non-partisan legal experts, federal judges can, and should, look skeptically upon, and even overturn entirely, any conspiracy by the Obama administration and insurers to create a backdoor bailout without Congress’s explicit consent in the form of an appropriation.

The next administration should fight these insurer lawsuits tooth-and-nail, refusing to either settle the lawsuits or to use the Judgment Fund to pay any claims — unless and until Congress explicitly appropriates funds for that purpose. Under our Constitution, the power of the purse lies solely with Congress, not with unelected bureaucrats who believe they can dispense billions of dollars in taxpayer money to their crony-capitalist colleagues at will.

Potential Savings to Taxpayers: Insurers submitted $2.5 billion in unpaid risk-corridor claims for 2014. Given continued insurer losses in 2015 and 2016, a conservative estimate would suggest a total of $7.5 billion in unpaid claims for each of 2014, 2015, and 2016. Actions by a new administration could save taxpayers from this bailout totaling billions — possibly tens of billions — of dollars.

REINSURANCE 

Reinsurance, the second program intended to ease the transition to Obamacare, would, according to the text of the law, impose “fees” on all employer-provided plans from 2014 to 2016. The funds were designed to 1) repay the Treasury for the cost of another reinsurance program in place from 2010 to 2013, and 2) subsidize insurers selling Obamacare-compliant individual plans with high-cost patients.

Action: Reclaim Funds for the Treasury: While the text of Obamacare explicitly states the Obama administration should prioritize repaying the Treasury over repaying insurers, the administration has done precisely the opposite — putting payments to insurers ahead of repayments to taxpayers. The non-partisan experts at CRS have called the Obama administration’s actions a clear violation of the text of the law.

The next administration can and should limit this insurer bailout by reorienting its priorities in line with both the law and basic common sense — taxpayers deserve priority before insurers. It could also sue insurers to recoup bailout funds dispensed in error because of the Obama administration’s reckless disregard for the law.

Potential Savings to Taxpayers: While insurers appear likely to receive the full $20 billion in reinsurance payments provided for under the law from 2014 to 2016, the Treasury is set to receive far less than the $5 billion it was promised under the statute. Reorienting the reinsurance priorities to put taxpayers before insurers will likely save the public billions.

COST-SHARING SUBSIDIES

Obamacare requires insurers to provide reduced cost sharing — that is, lower deductibles and co-payments — to households with incomes under 250 percent of the federal poverty level. But the text of the law nowhere includes an explicit appropriation to subsidize the insurer-provided discounts. The Obama administration, refusing to be bothered by such trifling inconveniences as the plain text of a statute, will have already paid out $13.9 billion by the end of this fiscal year (September 30). A future administration could turn the bailout taps off within days of taking office.

Action: Turn Off the Bailout Taps Immediately: As noted in the deposition of an IRS employee recently released by the House Ways and Means Committee, the Obama administration decided to turn on these bailout taps despite the plain text of the law — and without undertaking any public notice-and-comment process. A future administration could turn the bailout taps off in a similar fashion within days of taking office.

Action: Settle the House Lawsuit: On May 12, in United States District Court, Judge Rosemary Collyer agreed with the House of Representatives in U.S. House of Representatives v. Burwell, an important constitutional case related to the cost-sharing subsidies. The House argued, and Judge Collyer agreed, that the Obama administration’s payments to insurers violated the Constitution — which, by prohibiting any payment without an explicit appropriation, gives Congress, and only Congress, the “power of the purse.”

By settling the House lawsuit, the next administration would provide another level of insurance that the bailout taps to insurers could not be re-started. The House’s suit requests a permanent injunction prohibiting the Treasury Department and the Department of Health and Human Services from spending any taxpayer funds on cost-sharing subsidies to insurers unless and until Congress provides an explicit appropriation. If the next administration agreed to such a measure by settling the House’s lawsuit in federal court, it would bind all future administrations to the same standard — restraining executive power and restoring the separation of powers.

Potential Savings to Taxpayers: The Congressional Budget Office estimates that cost-sharing subsidies will total $45 billion over the next four fiscal years — roughly the time span of the next administration — and $130 billion over a decade, meaning that a new administration could save taxpayers tens of billions, if not hundreds of billions, of dollars.

This series of actions from the next administration would save taxpayers more than $50 billion in total — $7.5 billion from risk corridors, up to $5 billion from reinsurance, and $45 billion in cost-sharing subsidies — and potentially triple that amount if the restrictions on cost-sharing subsidies become permanent.

Just as important, the next administration should also thoroughly investigate the actions taken by the Obama administration regarding these insurer bailouts for any hint of illegality. In the deposition released by the House Ways and Means Committee, the IRS’s chief risk officer noted “there was some risk to making these [cost-sharing subsidy] payments with respect to the . . . Anti-Deficiency Act,” which he recalled “has criminal penalties associated with it” for federal employees who spend money not appropriated by Congress. The chief risk officer noted that “we take [the Anti-Deficiency Act] very seriously.”

At minimum, the next administration should investigate just how seriously all Obama administration employees took the Anti-Deficiency Act, and whether they violated the law — not to mention the Constitution’s separation of powers — to shovel bailout funds to insurers. The IRS’s chief risk officer noted that then-attorney general Eric Holder and Treasury Secretary Jack Lew were personally involved in the decision to turn on the bailout taps for the cost-sharing subsidies. In addition to turning off those taps, a new administration should determine whether the Obama administration’s sweetheart deals for health insurers crossed the line from mere crony capitalism into criminal activity.

This post was originally published at National Review.

Totaling Up $170.8 BILLION in Obamacare Bailouts

Obamacare has been in the news — and the courts — quite a lot recently. While much of the press attention has focused on the controversial contraception mandate, a potentially bigger issue remains largely unreported — namely, that the Obama administration has set in train an unholy trinity of bailouts that could pay health-insurance companies $170.8 billion in the coming decade.

Much of the litigation surrounds the legality — or more specifically, the lack of legality — of these bailouts. On May 12, the administration lost a case in United States District Court, U.S. House of Representatives v. Burwell, in which Judge Rosemary Collyer ruled that payments to insurers for cost-sharing subsidies without an express appropriation from Congress violated the Constitution. And recently, multiple insurers have filed suit against the government in the Court of Federal Claims, seeking payment for unpaid “risk corridor” funds, designed to cushion insurers from incurring major losses, or major gains, during the exchanges’ first three years.

What exactly do all these Obamacare lawsuits entail? And how much taxpayer money is the Obama administration shoveling to insurers in an attempt to keep them participating in its moribund exchanges? Herewith, a 101 tutorial on the more than $170 billion in Obamacare bailouts.

RISK CORRIDORS

What’s the issue? Risk corridors were one of two temporary programs (I discuss the other below) designed to provide stability to the law’s exchanges in their first years. From 2014 through 2016, the risk-corridor program is designed to minimize large insurer losses, as well as large insurer profits. Initially, the administration claimed risk corridors would be implemented in a budget-neutral manner — that is, outgoing payments to insurers with losses would equal incoming payments from insurers with gains. But the healthcare.gov catastrophe, coupled with policy changes unilaterally made in the fall of 2013, caused the Centers for Medicare and Medicaid Services (CMS) to float the idea of using taxpayer funds in risk corridors to offset insurer losses — in other words, bail them out.

How much has the government paid? Nothing, thankfully — at least not yet. Fearful that the administration could utilize risk corridors to implement a taxpayer-funded bailout of insurers, Congress passed in December 2014 (and subsequently renewed this past winter) appropriations language that prevents CMS from using additional taxpayer funds to pay insurers’ risk-corridor claims.

How much could the government pay? In 2014, insurers submitted $2.87 billion in risk-corridor claims, but because insurers with gains paid in only $362 million, insurers with losses received only that much in payments — approximately 12.6 percent of the requested funds. Last week insurers in North Carolina and Oregon sued to recover their unpaid risk-corridor funds, following a $5 billion class-action suit filed in February by an Obamacare co-op insurer in Oregon. While CMS has not yet settled those lawsuits seeking unpaid risk-corridor funds, in November it issued a policy memo stating that those unpaid funds represent an obligation of the federal government. Insurer losses more than doubled last year when compared with the 2014 losses.

Although CMS has not yet released data on risk-corridor claims for 2015 or 2016, it seems likely that risk corridors will incur losses similar to those for 2014. A McKinsey study released last month, “Exchanges Three Years In,” found that insurer losses more than doubled last year when compared with the 2014 losses — making $2.5 billion in claims the likely low estimate for risk corridors. A conservative assumption would estimate a total of $7.5 billion in unpaid risk-corridor claims — $2.5 billion each for 2014, 2015, and 2016.

Although the appropriations language in place currently prevents CMS from using taxpayer funds for risk-corridor claims, it is possible — even likely — that the administration could attempt to settle the insurer lawsuits as one way of getting bailout funds to insurers. Any settled lawsuits would be paid from the Judgment Fund of the Treasury, not out of a CMS budget account, thus circumventing the appropriations restrictions.

REINSURANCE

What’s the issue? The second Obamacare temporary stabilization program, called reinsurance, requires “assessments” — some would call them taxes — on all employer-provided health-insurance plans. These assessments are designed to 1) reimburse the Treasury for the $5 billion cost of a separate reinsurance program that operated from 2010 through 2013 and 2) reimburse insurers with high-cost patients from 2014 through 2016.

How much has the government paid? In 2014, insurers received nearly $8 billion in payments from the reinsurance “slush fund.” The administration still holds nearly $1.7 billion in funds from the 2014 benefit year — money that will no doubt get shoveled insurers’ way as well. While the law explicitly stated that the Treasury should get reimbursed for its $5 billion before insurers receive payments from the reinsurance fund, the Obama administration has implemented the law in the exact opposite manner — prioritizing insurer bailouts over repaying the Treasury. The Congressional Research Service (CRS) has stated that this action represents a clear violation of the text of the Obamacare statute. The Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

How much could the government pay? Between 2014 and 2016, insurers appear likely to receive the full $20 billion in reinsurance payments provided for under the law. On the other hand, the Treasury will receive far less than the $5 billion it was promised, because the Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

COST-SHARING SUBSIDIES 

What’s the issue? The law requires insurers to reduce cost-sharing (such as deductibles and co-payments) for certain low-income individuals with incomes under 250 percent of the federal poverty level. While Section 1402 of the law authorized the Departments of the Treasury and Health and Human Services to remit payments to insurers for the cost of these discounts, it did not include an explicit appropriation for them. Judge Collyer’s May 12 ruling, though stayed pending appeal by the administration, prohibits future spending on cost-sharing subsidies by the federal government unless and until Congress enacts an explicit appropriation.

How much has the government paid? In fiscal year 2014, insurers received $2.1 billion in cost-sharing subsidies. In fiscal 2015, the cost-sharing subsidies totaled $5.1 billion, and this fiscal year, spending on the subsidies will total an estimated $6.1 billion — for a total paid out (through this September 30) of $13.9 billion. How much could the government pay? If Judge Collyer’s ruling is not upheld on appeal, this bailout program — unlike the other two — will continue without end. According to the Congressional Budget Office, spending on cost-sharing subsidies will total $130 billion over the coming decade, unless halted by a judicial ruling — or unless a new administration decides it will not spend funds that have not been appropriated by Congress.

There you have it. Combine a total of $33.3 billion paid to date ($20 billion in reinsurance plus $13.3 billion in cost-sharing subsidies) with potential future bailouts of $137.5 billion ($7.5 billion in risk-corridor funds plus an additional $130 billion in cost-sharing subsidies) and you come up with a not-so-grand total of $170.8 billion in taxpayer-funded Obamacare bailouts to insurers.

The scope of both the bailouts and Obamacare’s failures looks truly staggering. Despite literally billions of dollars coming from three separate bailout programs, insurers still cannot make money selling Obamacare products. Most insurers continue to lose funds hand over fist, while some, such as UnitedHealthGroup, the nation’s largest health insurer, have all but exited the exchanges entirely.

The scope of the bailouts put the lie to Joe Biden’s claims just prior to Obamacare’s passage, when he claimed to ABC News, “We’re going to control the insurance companies.” Au contraire, Mr. Vice President. By requiring more than $170 billion in bailouts just to keep the sputtering exchanges afloat, the insurance companies are controlling you — and us, the taxpayers, as well.

This post was originally published at National Review.