Why Republicans Should Preserve Obamacare’s Cadillac Tax

Those seeking to understand why the United States faces out-of-control health-care costs need look no further than this week’s congressional agenda. On Wednesday, the House of Representatives will likely vote on legislation to repeal Obamacare’s “Cadillac tax” on high-cost health plans, a provision Congress has already delayed repeatedly.

Most economists agree that reforming the tax treatment of health insurance represents one key way to slow the growth of health-care costs. Yet neither party wants to take the courageous decisions required to do just that — even when, in this case, the “action” involved merely requires allowing a legislative provision already enacted to take effect.

The Conservative Approach to Controlling Costs

But from a conservative perspective, controlling health care costs in a broader sense involves getting incentives right. Reforming incentives can involve injecting more competition into the health care system — for instance, by improving generic drugs faster to help bring down prices. But it also requires reforms that encourage people to serve as smarter consumers of health care.

Health costs continue to skyrocket, in large part because individuals love to spend other people’s money. Few people can afford to pay for all their health care, such as major surgeries, out-of-pocket. Funding more care through third-party payments — a majority of Americans consume most of their health care through an insurer, and many insurers are chosen by an employer — increases spending.

The tax code exacerbates the third-party payment problem by allowing employers to provide health insurance to their workers on a tax-free basis. Economists agree that this tax preference encourages people to use more expensive health insurance than they need, and thus more health care than they need.

Why Do Conservatives Oppose a Conservative Reform?

However, the law used a clumsy approach to imposing this tax, on two levels. First, it applied the same 40 percent rate to all employer-provided policies, regardless of whether the particular affected workers came from a high-tax bracket, such as corporate CEOs, or a low-tax bracket, such as office janitors. Second, it imposed the tax as part of an overall package of revenue increases used to fund Obamacare.

Nonetheless, the “Cadillac tax” represents an important measure to control health care costs. Because Congress included this provision as part of Obamacare, Republicans could easily allow the measure to take effect while disclaiming responsibility for having enacted it. After all, everyone knows Obamacare passed with only Democratic votes.

Yet Republicans have spent the better part of the past decade trying to repeal this measure, without enacting a similar or better replacement that could control health care costs. Moreover, the House will apparently vote on the repeal this week without a full Congressional Budget Office score showing the sizable fiscal impact of that action.

Liberals’ Approach To Controlling Health Costs

Conservatives might not think a battle over the “Cadillac tax” is worth fighting. President Barack Obama’s attack ads from 2008 showed that “taxing health benefits” can prove incredibly politically powerful. (All the more ironic since the Obama White House insisted on including the “Cadillac tax” as part of Obamacare.)

But after watching the Democratic debates last month, conservatives should know that liberals have an “easy solution” to controlling health care costs: price controls, greater regulations, and more government control. After all, Sen. Bernie Sanders’ single-payer legislation exists in no small part to extend Medicare’s price controls over health care goods and services to all Americans, rather than just seniors.

If conservatives cannot support and implement changes that reform the incentives in the health care system, including reasonable limits on the tax treatment of employer-provided health coverage, they may end up bringing about the liberal alternative. And sooner than they think.

This post was originally published at The Federalist.

Ocasio-Cortez Wants Congress to Stop Pretending to Pay for Its Spending

Get used to reading more storylines like this over the next two years: The left hand doesn’t know what the far-left hand is doing.

On Wednesday, incoming House Speaker Nancy Pelosi (D-CA) faced a potential revolt from within her own party. Rep.-elect Alexandria Ocasio-Cortez (D-NY) and several progressive allies threatened to vote against the rules package governing congressional procedures on the first day of the new Congress Thursday, because of proposed changes they believe would threaten their ability to pass single-payer health care.

What’s Going On?

Ocasio-Cortez and her allies object to Pelosi’s attempt to reinstate Pay-as-You-Go (PAYGO) rules for the new 116th Congress. Put simply, those rules would require that any legislation the House considers not increase the deficit over five- and ten-year periods. In short, this policy would mean that any bill proposing new mandatory spending or revenue reductions must pay for those changes via offsetting tax increases and/or spending cuts—hence the name.

Under Republican control, the House had a policy requiring spending increases—but not tax cuts—to be paid for. Pelosi would overturn that policy and apply PAYGO to both the spending and the revenue side of the ledger.

Progressives object to Pelosi’s attempt to constrain government spending, whether in the form of additional fiscal “stimulus” or a single-payer health system.

However, Pelosi’s spokesman countered with a statement indicating that the progressives’ move “is a vote to let Mick Mulvaney make across-the-board cuts.” Mulvaney heads the Office of Management and Budget, which would implement any sequester under statutory PAYGO.

Regardless of what the new House decides regarding its own procedures for considering bills, Pay-as-You-Go remains on the federal statute books. Democrats re-enacted it in 2010, just prior to Obamacare’s passage. If legislation Congress passed  violates those statutory PAYGO requirements (as opposed to any internal House rules), it will trigger mandatory spending reductions via the sequester—the “across-the-board cuts” to which Pelosi’s spokesman referred.

To Pay for Spending—Or Not?

Progressives think reinstituting PAYGO would impose fiscal constraints hindering their ability to pass massive new spending legislation. However, the reality does not match the rhetoric from Ocasio-Cortez and others. Consider, for instance, just some of the ways a Democratic Congress “paid for” the more than $1.8 trillion in new spending on Obamacare:

  • A CLASS Act that even some Democrats called “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of,” and which never went into effect because the Obama administration could not implement it in a fiscally sustainable manner;
  • Double counting the Medicare savings in the legislation as “both” improving the solvency of Medicare and paying for the new spending in Obamacare;
  • Payment reductions that the non-partisan Medicare actuary considers extremely unlikely to be sustainable, and which could cause more than half of hospitals and nursing homes to become unprofitable within a generation;
  • Tax increases that Congress has repeatedly delayed, and which could end up never going into effect.

A Bipartisan Spending Addiction

An external observer weighing the Part D and Obamacare examples would find it difficult to determine the less dishonest approach to fiscal policy. It reinforces that America’s representatives have a bipartisan addiction to more government spending, and a virtually complete unwillingness to make tough choices now, instead bequeathing massive (and growing) amounts of debt to the next generation.

In that sense, Ocasio-Cortez and her fellow progressives should feel right at home in the new Congress. Republicans may criticize her for proposing new spending, but the difference between her and most GOP members represents one of degree rather than of kind. Therein lies the problem: In continuing to spend with reckless abandon, Congress is merely debating how quickly to sink our country’s fiscal ship.

This post was originally published at The Federalist.

Republicans Hide Obamacare Bailout Inside Health Savings Account Bill

Cue the scene from “Poltergeist”: “They’re baa-ack.” The Obamacare bailout seekers, that is.

Multiple Capitol Hill sources confirmed to me on Wednesday morning that the House Ways and Means Committee’s markup of health savings account (HSA)-related legislation later in the day comes with a potential ulterior motive: Committee and leadership staff want to resurrect this spring’s failed Obamacare “stability” legislation—and see the HSA provisions as a way to do so.

This Is a Bad Deal for Conservatives

The leadership gambit seems simple: with the HSA provisions, placate conservatives who (rightly) don’t want to bail out Obamacare, and allow the package to pass the House solely with Republican votes—because Democrats likely won’t vote to support any “stability” legislation imposing robust pro-life protections. With Democrats intending to make Obamacare premium increases an issue in the November elections, House leaders think the vote would inoculate vulnerable Republicans from political attacks by the Left.

But a “stability” vote would demoralize the Right, by showing how completely Republicans have caved on their repeal promises. It would also set a horrible precedent, officially declaring Obamacare “too big to fail,” which would put taxpayers on the hook for an ever-increasing flow of bailout funds.

That flow would soon vastly overwhelm any small amount of HSA incentives that conservatives received in exchange for their vote. Eventually, lawmakers would run out of other people’s money to spend propping up Obamacare.

Questionable Policies

The best bills on the Ways and Means agenda contain broad policies that will expand HSAs’ reach. In this group: A bill increasing HSA contribution limits; another bill allowing seniors eligible for (but not enrolled in) Medicare Part A to continue making HSA contributions; and legislation ensuring that all Obamacare bronze and catastrophic plans qualify for HSA contributions.

Other, more targeted measures that would expand the types of services HSA plans can cover could have a mixed effect. By allowing coverage for more services below a plan’s high deductible, they could draw more people to choose HSA coverage, but could also raise premiums for HSA plans.

Non-HSA Legislation Bears Attention, Too

Most troubling: The two pieces of legislation on the committee’s agenda not directly related to HSAs. The description of one bill hints at its inherent flaw:

The bill provides an off-ramp from Obamacare’s rising premiums and limited choices by allowing the premium tax credit to be used for qualified plans offered outside of the law’s exchanges and Healthcare.gov. In addition, it expands access to the lowest-premium plans available (‘catastrophic’ plans) for all individuals purchasing coverage in the individual market and allows the premium tax credit to be used to offset the cost of such plans.

Another bill suspending two Obamacare taxes sounds appealing on its face, but would have negative consequences. Suspending Obamacare’s “Cadillac tax” for two more years (until 2022) would further weaken an effort in that law (albeit a poorly designed one) to change current incentives that encourage people to over-consume employer-provided health insurance and thus health care. In short, it would encourage the growth of health care costs, rather than working to lower them.

The bill’s effort to repeal the employer mandate for years 2014 through 2018 likewise could have unintended consequences. The bill only repeals the employer mandate retrospectively likely because doing so prospectively (i.e., for 2019 and future years) could encourage employer “dumping”—businesses dropping coverage and sending their workers to the exchanges, which could raise spending on Obamacare insurance subsidies. While the retrospective nature of that legislation could mitigate any “dumping” in the short term, if employers think Congress will continue to weaken the mandate in future years, they could view that as an incentive to drop coverage.

This Is Not a Good Deal

The Ways and Means Committee package includes some very good HSA-related bills, some potentially harmful bills that could further entrench Obamacare, and some bills that may not have much effect. Regardless of the individual bills’ specific merits, they certainly do not warrant conservatives’ approval for a massive “stability” package in the tens of billions of taxpayer dollars.

This post was originally published at The Federalist.

Republicans’ Plan to Raise Health Care Costs

Who would purposefully design a legislative strategy whereby whoever wins actually loses? Congressional Republicans, that’s who.

On Tuesday evening, Republican leaders in the House introduced another continuing resolution to fund the federal government for four more weeks (through February 16). In an attempt to win Democratic votes, the bill includes a six-year extension of the State Children’s Health Insurance Program, without any of the conservative reforms congressional leaders said they would fight for back in 2015.

Inane Tax Treatment of Health Insurance

Since an Internal Revenue Service ruling (later codified) during World War II, the federal government has excluded health insurance and other fringe employment benefits from both payroll and income taxes. Economists on all sides of the political spectrum agree that this exclusion encourages workers to over-consume health insurance, and thus health care.

Taxing wages but not health benefits encourages firms to offer more generous benefits—with lower deductibles, co-payments, and so forth—and that lower cost-sharing encourages people to consume extra health care. (“I’m not sure how sick I really am, but because I only have a $10 co-pay, I might as well go to the doctor and find out.”)

Obamacare attempted to change that dynamic through its “Cadillac tax” on “high-cost” employer plans. The tax applied for every dollar of benefits provided over a defined amount, encouraging firms to make their benefits less rich, to avoid exceeding the threshold that would trigger the tax.

As for the Bad Strategy

However, Republicans could easily remedy the “Cadillac tax’s” flaws with another alternative. The alternative could limit the tax preference for employer-provided health insurance—without a punitive 40 percent tax rate, and while not raising any additional revenue over a decade. President George W. Bush proposed this concept more than a decade ago, and the Republican Study Committee and others have since endorsed it.

However, repealing the “Cadillac tax” outright would effectively sabotage any ability to reform or replace it. As with Obamacare’s Independent Payment Advisory Board (IPAB), removing a constraint on health spending now with the intent of replacing it later would almost certainly mean that “later” will never arrive. That of course means Republicans, consistent with their insatiable desire to postpone difficult decisions, want to repeal both the “Cadillac tax” and IPAB without constructing replacements.

Tuesday evening’s spending bill would postpone the “Cadillac tax”—already delayed once, until 2020—for another two years, until 2022. It would likewise suspend Obamacare’s medical device tax for two years, and its health insurer tax for one year. It would also exempt these changes from the Statutory Pay-As-You-Go Act, which requires offsetting spending cuts to fund this tax relief—because heaven forbid Congress be forced to reduce spending.

This post was originally published at The Federalist.

The Binary Choice Behind a “Skinny” Health Care Bill

Are you for The Swamp—or are you against it?

It’s really that simple. Text of the supposed “skinny” bill—or the “lowest-common denominator” approach, if one prefers—has not yet been released. But based on press reports, it appears the legislation will repeal the individual and employer mandate penalties, along with the medical device tax, and little else, so the House and Senate can set up a conference committee to re-write the bill—if the House does not decide to pass this “skinny” bill outright.

  • It will embolden Senate leadership to keep bullying rank-and-file members on future pieces of legislation, pulling bait-and-switch moves at the last minute and daring members to vote no;
  • It will move the health-care debate from an open Senate floor process into a conference committee, where after one token public meeting most legislative work will occur behind closed doors;
  • It will concede that the “world’s greatest deliberative body” cannot deliberate as an institution, and instead empower unelected leadership staff in a secretive process to cobble together a new bill that can pass both chambers;
  • It will continue a process that Republican staffers themselves have described as “making it rain” on moderate senators through various backroom deals and spending sprees—bringing parlance heretofore used in strip clubs to the U.S. Congress;
  • It will raise premiums an estimated 20 percent, by eliminating the individual mandate penalty, but leaving all of Obamacare’s regulations intact;
  • It will all-but-guarantee a future Obamacare bailout, destabilizing insurance markets such that carriers will come running to Congress demanding corporate welfare payments to keep offering exchange coverage; and
  • It will prioritize K Street lobbyists who have fought for years to repeal the medical device tax, virtually guaranteeing that provision will remain in the final legislation, while raising premiums on hard-working American families.

If senators support the above scenarios, then they should vote for the bill. If not, perhaps they should consider another course.

Blast from the Past

Conservatives have seen these games played before—and rejected them. In 2015, House Republican leaders initially offered a bill eerily similar to the rumored “skinny” legislation. That bill repealed the individual and employer mandates, the medical device tax, the “Cadillac tax,” the Obamacare prevention “slush fund,” and a few other ancillary provisions. Conservative groups could have supported it—just to keep the process moving, and continue the momentum for a broader repeal—as leadership is asking them to do right now. They did not because:

The bill would not restore Americans’ health care freedom because it leaves the main pillars of Obamacare in place, nor would it actually defund abortion giant Planned Parenthood. This bill violates an explicit promise made in the budget, which ‘affirm[ed] the use of reconciliation for the sole purpose of repealing the President’s job-killing health care law.’

That statement comes from Heritage Action, which key-voted against passage of the “skinny” repeal bill in 2015. Likewise, in the fall of 2015 conservative senators Mike Lee (R-UT), Marco Rubio (R-FL), and Ted Cruz (R-TX) said publicly they could not support what they viewed as an insufficient attempt at repeal:

On Friday the House of Representatives is set to vote on a reconciliation bill that repeals only parts of Obamacare. This simply isn’t good enough. Each of us campaigned on a promise to fully repeal Obamacare and a reconciliation bill is the best way to send such legislation to President Obama’s desk. If this bill cannot be amended so that it fully repeals Obamacare pursuant to Senate rules, we cannot support this bill. With millions of Americans now getting health premium increase notices in the mail, we owe our constituents nothing less.

The bill does not even touch Obamacare’s main two entitlement expansions: The Medicaid expansion and the Exchange subsidies. The bill leaves all of Obamacare’s new insurance rules and regulations in place. It also leaves many of Obamacare’s taxes in place….

The Obamacare repeal movement has been successful in the last 5 years in keeping full repeal intact. It has recognized that it will be much easier to repeal Obamacare as a whole if all of the mandates and entitlement expansions are repealed at once, since we know that the law is vastly unpopular when taken as a whole. The threat is that ‘repeal’ is defined-down to simply mean repealing a couple high-profile provisions, while allowing the main pillars of the law to continue untouched. This package threatens that very outcome: defining down ‘full repeal’ and jeopardizing the entire repeal effort. [Emphasis mine.]

Need for Consistency

In the past several days, conservatives have attacked Senate moderates—rightly—for flip-flopping on a full repeal of Obamacare, voting for it in 2015 but opposing it now. Those who face a similar situation from the Right—that is, those who opposed a “skinny” bill two years ago—should not fall into the same trap as those from the center. On both policy and process, conservatives should reject the minimalist approach floated by leadership, and continue working to repeal Obamacare.

This post was originally published in The Federalist.

Legislative Bulletin: Updated Summary of Better Care Reconciliation Act

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

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

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

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

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

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

Title I

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title III

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

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

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

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

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

Legislative Bulletin: Summary of Senate Republicans’ Revised Better Care Reconciliation Act

On June 26, Senate leadership released an updated discussion draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. A detailed summary of the bill is below, along with possible conservative concerns where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted. Ten-year fiscal impacts from the Congressional Budget Office score are also noted where applicable.

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

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

Title I

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

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

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

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

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

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

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

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

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

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

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program; current law requires three months of retroactive eligibility. Saves $5 billion over ten years.

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

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

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

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

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

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

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

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances. This language is substantially similar to Section 101 of the 2015/2016 reconciliation bill. Saves $9 billion over ten years.

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

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

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

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

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

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

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

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

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

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

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

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

How “Repeal and Replace” Legislation Could Increase the Deficit

Even if the Congressional Budget Office releases an estimate early next week claiming that the Senate Obamacare discussion draft reduces the deficit, the legislation could well end up increasing the deficit. That’s because the bill repeals most of the law’s taxes, but leaves one in place—for the moment. Under the discussion draft, Obamacare’s “Cadillac tax” on high-cost health plans would return in 2026.

The New York Times noted earlier this week that Republicans intend to offer an amendment to eliminate the tax outright. If an outright repeal of the “Cadillac tax” receives more than 60 votes in the Senate—as it has before—that would mean the legislation could (and likely would) increase the deficit in the long term, while still passing through budget reconciliation measures on a simple majority vote.

About the Heller Amendment

Because that vote passed overwhelmingly (i.e., with more than 60 votes), the Congressional Budget Act restrictions on reconciliation legislation—that the provision not increase the deficit outside the ten-year budget window—did not apply, and would not apply in this case either. In other words, if the bill increases the deficit solely due to the “Cadillac tax” repeal amendment, and 60 senators have supported said amendment, the bill’s overall deficit impact doesn’t matter.

It’s the Spending, Stupid

Should this scenario transpire, and the reconciliation bill ultimately increase the deficit, congressional leadership may claim that the long-term deficit increase would be due to the full repeal of the Obamacare “Cadillac tax.” But an examination of prior CBO scores shows a different picture.

  • The initial House “repeal” reconciliation bill (H.R. 3762) from the fall of 2015—which repealed the “Cadillac tax,” but did not repeal Obamacare’s entitlements—would have appreciably increased the deficit in the long term, according to CBO; but
  • The revised “repeal” reconciliation bill that passed the Senate later in 2015—which repealed the “Cadillac tax,” and all the Obamacare taxes, while also repealing the law’s new entitlements—would have had a minimal, almost infinitesimal, deficit impact over the coming half-century.

Given this dynamic, some conservatives may argue that it isn’t the repeal of the “Cadillac tax” that would cause any increase in the long-term budget deficit—it’s the entitlement spending included in the bill.

Raise the Deficit, Raise Costs

Not only would repeal of the “Cadillac tax” increase the budget deficit, it would also increase overall health-care spending. Although crude—it taxes all health plans at 40 percent, rather than at filers’ marginal tax rates, and raises taxes overall—the “Cadillac tax” would, if ever allowed to go into effect, serve as a control on health care spending. Most economists agree that the current, unlimited tax exclusion for employer-provided health coverage encourages workers to over-consume health insurance, and thus health care. Limiting this exclusion—albeit without raising taxes—represents sound conservative policy.

Ironically, if this procedural gambit succeeds, Republicans will have raised both the budget deficit and overall health care costs. Those potential outcomes provide further evidence the bill would reprise Obamacare, not repeal it.

This post was originally published at The Federalist.

Legislative Bulletin: Summary of Senate Republicans’ Better Care Reconciliation Act

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

On June 22, Senate leadership released a discussion draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. A detailed summary of the bill is below, along with possible conservative concerns where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

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

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

Title I

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

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

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

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

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

Eliminates the so-called “family glitch,” which renders members of a worker’s family ineligible for insurance subsidies if the worker qualifies for “affordable” employer-sponsored health insurance, regardless of whether or not said coverage applies to a worker’s family. (Additional information available here.) Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

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

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

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

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

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

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill.

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

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

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

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

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

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

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

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

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

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

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program; current law requires three months of retroactive eligibility.

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

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

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

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education.

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

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

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

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

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

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

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

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

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

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

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

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

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

Legislative Bulletin: Summary of “Repeal and Replace” Amendments

Ahead of tomorrow’s expected vote on the American Health Care Act, below please find updates on the amendments offered to the legislation. The original summary of the bill is located here.

The bill will be considered tomorrow in the absence of a Congressional Budget Office score of any of 1) the second-degree managers amendment; 2) the Palmer-Schweikert amendment; 3) the MacArthur-Meadows amendment; and 4) the Upton amendment. Some conservatives may be concerned that both the fiscal and policy implications of these four legislative proposals will not be fully vetted until well after Members vote on the legislation. Some conservatives may also be concerned that changes to the legislation made since the last CBO analysis (released on March 23) could change its deficit impact — which could, if CBO concludes the amended bill increases the deficit, cause the legislation to lose its privilege as a reconciliation matter in the Senate.

UPTON AMENDMENT: Adds an additional $8 billion to the Stability Fund for the period 2018-2023 for the sole purpose of “providing assistance to reduce premiums or other out-of-pocket costs of individuals who are subject to an increase in the monthly premium rate for health insurance coverage” as a result of a state adopting a waiver under the MacArthur/Meadows amendment. Gives the Secretary of Health and Human Services authority to create “an allocation methodology” for such purposes.

Some conservatives may note that the adequacy (or inadequacy) of the funding remains contingent largely upon the number of states that decide to submit relevant waiver requests. Some conservatives may also be concerned by the broad grant of authority given to HHS to develop the allocation with respect to such important details as which states receive will funding (and how much), the amount of the $8 billion disbursed every year over the six-year period, and which types of waiver requests (e.g., age rating changes, other rate changes, and/or essential health benefit changes) will receive precedence for funding.

MACARTHUR/MEADOWS AMENDMENT: Creates a new waiver process for states to opt out of some (but not all) of Obamacare’s insurance regulations. States may choose to opt out of:

  • Age rating requirements, beginning in 2018 (Obamacare requires that insurers may not charge older enrollees more than three times the premium paid by younger enrollees);
  • Essential health benefits, beginning in 2020; and
  • In states that have established some high-risk pool or reinsurance mechanism, the 30 percent penalty in the bill for individuals lacking continuous coverage, and/or Obamacare’s prohibition on rating due to health status (again, for individuals lacking continuous insurance coverage), beginning after the 2018 open enrollment period.

Provides that the waiver will be considered approved within 60 days, provided that the state self-certifies the waiver will accomplish one of several objectives, including lowering health insurance premiums. Allows waivers to last for up to 10 years, subject to renewal. Exempts certain forms of coverage, including health insurance co-ops and multi-state plans created by Obamacare, from the state waiver option.

Also exempts the health coverage of Members of Congress from the waiver requirement. House leadership has claimed that this language was included in the legislation to prevent the bill from losing procedural protection in the Senate (likely for including matter outside the jurisdiction of the Senate Finance and HELP Committees). The House will vote on legislation (H.R. 2192) tomorrow that would if enacted effectively nullify this exemption.

While commending the attempt to remove the regulatory burdens that have driven up insurance premiums, some conservatives may be concerned that the language not only leaves in place a federal regulatory regime, but maintains Obamacare as the default regime unless and until a state applies for a waiver — and thus far no governor or state has expressed an interest in doing so. Some conservatives may also question whether waivers will be revoked by states following electoral changes (i.e., a change in party control), and whether the amendment’s somewhat permissive language gives the Department of Health and Human Services grounds to reject waiver renewal applications — both circumstances that would further limit the waiver program’s reach.

PALMER/SCHWEIKERT AMENDMENT: Adds an additional $15 billion to the Stability Fund for the years 2018 through 2026 for the purpose of creating an invisible risk sharing program. Requires the Centers for Medicare and Medicaid Services to establish, following consultations with stakeholders, parameters for the program, including the eligible individuals, standards for qualification (both voluntary and automatic), and attachment points and reimbursement levels. Provides that the federal government will establish parameters for 2018 within 60 days of enactment, and requires CMS to “establish a process for a state to operate” the program beginning in 2020.

Some conservatives may be concerned that this amendment is too prescriptive to states — providing $15 billion in funding contingent solely on one type of state-based insurance solution — while at the same time giving too much authority to HHS to determine the parameters of that specific solution.

 

MARCH 24 UPDATE:

On Thursday evening, House leadership released the text of a second-degree managers amendment making additional policy changes. That amendment:

  • Delays repeal of the Medicare “high-income” tax until 2023;
  • Amends language in the Patient and State Stability Fund to allow states to dedicate grant funds towards offsetting the expenses of rural populations, and clarify the maternity, mental health, and preventive services allowed to be covered by such grants;
  • Appropriates an additional $15 billion for the Patient and State Stability Fund, to be used only for maternity and mental health services; and
  • Allows states to set essential health benefits for health plans, beginning in 2018.

Earlier on Thursday, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill. Note that this “updated” CBO score released Thursday afternoon does NOT reflect any of the changes proposed Thursday evening; scores on that amendment will not be available until after Friday’s expected House vote.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 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 $19.6 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 $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

MARCH 23 UPDATE:

On March 23, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 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 $19.6 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 $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

On the evening of March 20, House Republicans released two managers amendments to the American Health Care Act—one making policy changes, and the other making “technical” corrections. The latter amendment largely consists of changes made in an attempt to avoid Senate points-of-order fatal to the reconciliation legislation.

In general, the managers amendment proposes additional spending (increasing the inflation measure for the Medicaid per capita caps) and reduced revenues (accelerating repeal of the Obamacare taxes) when compared to the base bill. However, that base bill already would increase the deficit over its first five years, according to the Congressional Budget Office.

Moreover, neither the base bill nor the managers amendment—though ostensibly an Obamacare “repeal” bill—make any attempt to undo what Paul Ryan himself called Obamacare’s “raid” on Medicare, diverting hundreds of billions of dollars from that entitlement to create new entitlements. Given this history of financial gimmickry and double-counting, not to mention our $20 trillion debt, some conservatives may therefore question the fiscal responsibility of the “sweeteners” being included in the managers package.

Summary of both amendments follows:

Policy Changes

Medicaid Expansion:           Ends the enhanced (i.e., 90-95%) federal Medicaid match for all states that have not expanded their Medicaid programs as of March 1, 2017. Any state that has not expanded Medicaid to able-bodied adults after that date could do so—however, that state would only receive the traditional (50-83%) federal match for their expansion population. However, the amendment prohibits any state from expanding to able-bodied adults with incomes over 133% of the federal poverty level (FPL) effective December 31, 2017.

With respect to those states that have expanded, continues the enhanced match through December 31, 2019, with states receiving the enhanced match for all beneficiaries enrolled as of that date as long as those beneficiaries remain continuously enrolled in Medicaid. Some conservatives may be concerned that this change, while helpful, does not eliminate the perverse incentive that current expansion states have to sign up as many beneficiaries as possible over the next nearly three years, to receive the higher federal match rate.

Work Requirements:           Permits (but does not require) states to, beginning October 1, 2017, impose work requirements on “non-disabled, non-elderly, non-pregnant” beneficiaries. States can determine the length of time for such work requirements. Provides a 5 percentage point increase in the federal match for state expenses attributable to activities implementing the work requirements.

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education.

Medicaid Per Capita Caps:              Increases the inflation measure for Medicaid per capita caps for elderly, blind, and disabled beneficiaries from CPI-medical to CPI-medical plus one percentage point. The inflation measure for all other enrollees (e.g., children, expansion enrollees, etc.) would remain at CPI-medical.

Medicaid “New York Fix:”               Reduces the federal Medicaid match for states that require their political subdivisions to contribute to the costs of the state Medicaid program. Per various press reports, this provision was inserted at the behest of certain upstate New York congressmen, who take issue with the state’s current policy of requiring some counties to contribute towards the state’s share of Medicaid spending. Some conservatives may be concerned that this provision represents a parochial earmark, and question its inclusion in the bill.

Medicaid Block Grant:        Provides states with the option to select a block grant for their Medicaid program, which shall run over a 10-year period. Block grants would apply to adults and children ONLY; they would not apply with respect to the elderly, blind, and disabled population, or to the Obamacare expansion population (i.e., able-bodied adults).

Requires states to apply for a block grant, listing the ways in which they shall deliver care, which must include 1) hospital care; 2) surgical care and treatment; 3) medical care and treatment; 4) obstetrical and prenatal care and treatment; 5) prescription drugs, medicines, and prosthetics; 6) other medical supplies; and 7) health care for children. The application will be deemed approved within 30 days unless it is incomplete or not actuarially sound.

Bases the first year of the block grant based on a state’s federal Medicaid match rate, its enrollment in the prior year, and per beneficiary spending. Increases the block grant every year with CPI inflation, but does not adjust based on growing (or decreasing) enrollment. Permits states to roll over block grant funds from year to year.

Some conservatives, noting the less generous inflation measure for block grants compared to per capita caps (CPI inflation for the former, CPI-medical inflation for the latter), and the limits on the beneficiary populations covered by the block grant under the amendment, may question whether any states will embrace the block grant proposal as currently constructed.

Implementation Fund:        Creates a $1 billion fund within the Department of Health and Human Services to implement the Medicaid reforms, the Stability Fund, the modifications to Obamacare’s subsidy regime (for 2018 and 2019), and the new subsidy regime (for 2020 and following years). Some conservatives may be concerned that this money represents a “slush fund” created outside the regular appropriations process at the disposal of the executive branch.

Repeal of Obamacare Tax Increases:             Accelerates repeal of Obamacare’s tax increases from January 2018 to January 2017, including:

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • 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—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

Retroactive Eligibility:       Strikes Section 114(c), which required Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. The section was likely stricken for procedural reasons to avoid potentially fatal points-of-order, for imposing new programmatic requirements outside the scope of the Finance Committee’s jurisdiction and/or related to Title II of the Social Security Act.

Safety Net Funding:              Makes changes to the new pool of safety net funding for non-expansion states, tying funding to fiscal years instead of calendar years 2018 through 2022.

Medicaid Per Capita Cap:   Makes changes to cap formula, to clarify that all non-Disproportionate Share Hospital (DSH) supplemental payments are accounted for and attributable to beneficiaries for purposes of calculating the per capita cap amounts.

Stability Fund:          Makes technical changes to calculating relative uninsured rates under formula for allocating Patient and State Stability Fund grant amounts.

Continuous Coverage:         Strikes language requiring 30 percent surcharge for lack of continuous coverage in the small group market, leaving the provision to apply to the individual market only. With respect to the small group market, prior law HIPAA continuation coverage provisions would still apply.

Re-Write of Tax Credit:      Re-writes the new tax credit entitlement as part of Section 36B of the Internal Revenue Code—the portion currently being used for Obamacare’s premium subsidies. In effect, the bill replaces the existing premium subsidies (i.e., Obamacare’s refundable tax credits) with the new subsidies (i.e., House Republicans’ refundable tax credits), effective January 1, 2020.

The amendment was likely added for procedural reasons, attempting to “bootstrap” on to the eligibility verification regime already in place under Obamacare. Creating a new verification regime could 1) exceed the Senate Finance Committee’s jurisdiction and 2) require new programmatic authority relating to Title II of the Social Security Act—both of which would create a point-of-order fatal to the entire bill in the Senate.

In addition, with respect to the “firewall”—that is, the individuals who do NOT qualify for the credit based on other forms of health coverage—the amendment utilizes a definition of health insurance coverage present in the Internal Revenue Code. By using a definition of health coverage included within the Senate Finance Committee’s jurisdiction, the amendment attempts to avoid exceeding the Finance Committee’s remit, which would subject the bill to a potentially fatal point of order in the Senate.

However, in so doing, this ostensibly “technical” change restricts veterans’ access to the tax credit. The prior language in the bill as introduced (pages 97-98) allowed veterans eligible for, but not enrolled in, coverage through the Veterans Administration to receive the credit. The revised language states only that individuals “eligible for” other forms of coverage—including Medicaid, Medicare, SCHIP, and Veterans Administration coverage—may not qualify for the credit. Thus, with respect to veterans’ coverage in particular, the managers package is more restrictive than the bill as introduced, as veterans eligible for but not enrolled in VA coverage cannot qualify for credits.

Finally, the amendment removes language allowing leftover credit funds to be deposited into individuals’ health savings accounts—because language in the base bill permitting such a move raised concerns among some conservatives that those taxpayer dollars could be used to fund abortions in enrollees’ HSAs.