Six Things about Pre-Existing Conditions Republican “Leaders” Still Don’t Get

“If at first you don’t succeed, go ahead and quit.” That might be the takeaway from excerpts of a conference call held earlier this month by House Minority Leader Kevin McCarthy (R-CA), and published in the Washington Post.

McCarthy claimed that Republicans’ “repeal and replace” legislation last Congress “put [the] pre-existing condition campaign against us, and so even people who are [sic] running for the very first time got attacked on that. And that was the defining issue and the most important issue in the [midterm election] race.” He added: “If you’ll notice, we haven’t done anything when it comes to repealing Obamacare this time.”

Problem 1: Pre-Existing Condition Provisions In Context

I first noted this dilemma last summer: Liberals call the pre-existing condition provisions “popular” because their polls only ask about the policy, and not its costs. If you ask Americans whether they would like a “free” car, how many people do you think would turn it down? The same principle applies here.

When polls ask about the trade-offs associated with the pre-existing condition provisions—which a Heritage Foundation study called the largest driver of premium increases under Obamacare—support plummets. Cato surveys in both 2017 and 2018 confirmed this fact. Moreover, a Gallup poll released after the election shows that, by double-digit margins, Americans care more about rising health premiums and costs than about losing coverage due to a pre-existing condition.

The overall polling picture provided an opportunity for Republicans to push back and point out that the pre-existing condition provisions have led to skyrocketing premiums, which priced 2.5 million people out of the insurance marketplace from 2017 to 2018. Instead, most Republicans did nothing.

Problem 2: Republicans’ Awful Legislating

The bills’ flaws came from a failure to understand how Obamacare works. The law’s provisions requiring insurers to offer coverage to everyone (guaranteed issue) and price that coverage the same regardless of health status (community rating) make insurers want to avoid covering sick people. Those two provisions necessitate another two requirements, which force insurers to cover certain conditions (essential health benefits) and a certain percentage of expected health costs (actuarial value).

In general, the House and Senate bills either repealed, or allowed states to waive, the latter two regulations, while keeping the former two in place. If Republicans had repealed all of Obamacare’s insurance regulations, they could have generated sizable premium savings—an important metric, and one they could tout to constituents. Instead, they ended up in a political no man’s land, with people upset about losing their pre-existing condition “protections,” and no large premium reductions to offset that outrage.

Looking at this dynamic objectively, it isn’t surprising that McCarthy and his colleagues ended up with a political loser on their hands. The true surprise is why anyone ever thought the legislative strategy made for good politics—or, for that matter, good (or even coherent) policy.

Problem 3: Pre-Existing Conditions Aren’t Going Away

Within hours after Sen. Thom Tillis (R-NC) introduced a bill last year maintaining Obamacare’s pre-existing condition provisions—the requirement that all insurers offer coverage at the same rates to all individuals, regardless of health status—liberals weighed in to call it insufficient.

As noted above, Obamacare encourages insurers to discriminate against people with pre-existing conditions. Repealing only some of the law’s regulations would exacerbate that dynamic, by giving insurers more tools with which to avoid enrolling sick people. Liberals recognize this fact, and will say as much any time Republicans try to modify any of Obamacare’s major insurance regulations.

Problem 4: Better Policies Exist

According to the Post, McCarthy said he wants to recruit candidates who would “find a solution at the end of the day.” A good thing that, because better solutions for the problems of pre-existing conditions do exist (I’ve written about several) if McCarthy had ever bothered to look for them.

Their political attacks demonstrate that liberals focus on supporting “insurance” for people once they develop a pre-existing condition. (Those individuals’ coverage by definition really isn’t “insurance.”) By contrast, conservatives should support making coverage more affordable, such that people can buy it before they develop a pre-existing condition—and keep it once they’re diagnosed with one.

Regulations proposed by the Trump administration late last year could help immensely on this front, by allowing employers to subsidize insurance that individuals hold and keep—that is, coverage that remains portable from job to job. Similar solutions, like health status insurance, would also encourage portability of insurance throughout one’s lifetime. Other options, such as direct primary care and high-risk pools, could provide care for people who have already developed pre-existing conditions.

Using a series of targeted alternatives to reduce and then to solve the pre-existing condition problem would prove far preferable than the blunt alternative of one-size-fits-all government regulations that have made coverage unaffordable for millions. However, such a solution would require political will from Republicans—which to date they have unequivocally lacked.

Problem 5: Republicans’ Alternative Is Socialized Medicine

Instead of promoting those better policies, House Republican leaders would like to cave in the most efficient manner possible. During the first day of Congress, they offered a procedural motion that, had it been adopted, would have instructed the relevant committees of jurisdiction to report legislation that:

(1) Guarantees no American citizen can be denied health insurance coverage as the result of a previous illness or health status; and (2) Guarantees no American citizen can be charged higher premiums or cost sharing as the result of a previous illness or health status, thus ensuring affordable health coverage for those with pre-existing conditions.

Guaranteeing that everyone gets charged the same price for health care? I believe that’s called socialism—and socialized medicine.

Their position makes it very ironic that the same Republican committee leaders are pushing for hearings on Democrats’ single-payer legislation. It’s a bit rich to endorse one form of socialism, only to denounce another form as something that will destroy the country. (Of course, Republican leaders will only take that position unless and until a single-payer bill passes, at which point they will likely try to embrace it themselves.)

Problem 6: Health Care Isn’t Going Away As An Issue

The federal debt this month passed $22 trillion, and continues to rise. Most of our long-term government deficits arise from health care—the ongoing retirement of the baby boomers, and our corresponding obligations to Medicare, Medicaid, and now Obamacare.

Any Republican who cares about a strong national defense, or keeping tax rates low—concerns most Republicans embrace—should care about, and take an active interest in, health care and health policy. Given his comments about not repealing, or even talking about, Obamacare, McCarthy apparently does not.

But unsustainable trends are, in the long run, unsustainable. At some point in the not-too-distant future, skyrocketing spending on health care will mean that McCarthy will have to care—as will President Trump, and the Democrats who have gone out of their way to avoid talking about Medicare’s sizable financial woes. Here’s hoping that by that point, McCarthy and Republican leaders will have a more coherent—and conservative—policy than total surrender to the left.

This post was originally published at The Federalist.

How Republicans Shot Themselves in the Foot on Pre-Existing Conditions

Republicans who want to blame their election shortcomings on last year’s attempt to “repeal-and-replace” Obamacare will have all the fodder they need from the media. A full two weeks before Election Day, the bedwetters caucus was already out in full force:

House Republicans are increasingly worried that Democrats’ attacks on their votes to repeal and replace Obamacare could cost them the House. While the legislation stalled in the Senate, it’s become a toxic issue on the campaign trail for the House Republicans who backed it.

In reality, however, the seeds of this problem go well beyond this Congress, or even the last election cycle. A health care strategy based on a simple but contradictory slogan created a policy orphan that few Republicans could readily defend.

A Dumb Political Slogan

Around the same time last year, I wrote an article explaining why the “repeal-and-replace” mantra would prove so problematic for the Republican Congress trying to translate the slogan into law. Conservatives seized on the “repeal” element to focus on eradicating the law, and taking steps to help lower health costs.

By contrast, moderates assumed that “replace” meant Republican lawmakers had embraced the mantra of universal health coverage, and would maintain most of the benefits—both the number of Americans with insurance and the regulatory “protections”—of Obamacare itself. Two disparate philosophies linked by a conjunction does not a governing platform make. The past two years proved as much.

A Non-Sensical Bill

In life, one mistake can often lead to another, and so it proved in health care. After having created an internal divide through the “repeal-and-replace” mantra over four election cycles, Republicans had to put policy meat on the details they had papered over for seven years. In so doing, they ended up with a “solution” that appealed to no one.

  1. Removed Obamacare’s requirements for what treatments insurers must cover (e.g., essential health benefits);
  2. Removed Obamacare’s requirements about how much of these treatments insurers must cover (e.g., actuarial value, which measures a percentage of expected health expenses covered by insurance); but
  3. Retained Obamacare’s requirements about whom insurance must cover—the requirement to cover all applicants (guaranteed issue), and the related requirement not to vary premiums based on health status (community rating).

As I first outlined early last year, this regulatory combination resulted in a witch’s brew of bad outcomes on both the policy and political fronts:

  • Because lawmakers retained the requirements for insurers to cover all individuals, regardless of health status, the bills didn’t reduce premiums much. If insurers must charge all individuals the same rates regardless of their health, they will assume that a disproportionately sicker population will sign up. That dynamic meant the bills did little to reverse the more-than-doubling of individual market insurance premiums from 2013-17. What little premium reduction did materialize came largely due to the corporate welfare payments the bills funneled to insurers in the form of a “Stability Fund.”
  • However, because lawmakers removed the requirements about what and how much insurers must cover, liberal groups raised questions about access to care, particularly for sicker populations. This dynamic led to the myriad charges and political attacks about Republicans “gutting” care for people with pre-existing conditions.

You couldn’t have picked a worse combination for lawmakers to try to defend. The bills as written created a plethora of “losers” and very few clear “winners.” Legislators absorbed most of the political pain regarding pre-existing conditions that they would have received had they repealed those regulations (i.e., guaranteed issue and community rating) outright, but virtually none of the political gain (i.e., lower premiums) from doing so.

Some people—including yours truly—predicted this outcome. Before the House voted on its bill, I noted that this combination would prove untenable from a policy perspective, and politically problematic to boot. Republicans plowed ahead anyway, likely because they saw this option as the only way to breach the policy chasm caused by bad sloganeering, and paid the price.

Lawmaker Ignorance and Apathy

That apathy continued after Obamacare’s enactment. While Suderman articulated an alternative vision to the law, he admitted that “Republicans can’t make the case for that plan because they’ve never figured out what it would look like. The GOP plan is always in development but never ready for final release.”

Emphasizing the “repeal-and-replace” mantra allowed Republicans to avoid face the very real trade-offs that come with making health policy. When a Republican Congress finally had to look those trade-offs in the face, it couldn’t. Many didn’t know what they wanted, or wanted a pain-free solution (“Who knew health care could be so complicated?”). Difficulty regarding trade-offs led to the further difficulty of unifying behind a singular policy.

Can’t Avoid Health Care

Many conservative lawmakers face something that could be described as “health policy PTSD”—they don’t understand it, so they don’t study it; they only define their views by what they oppose (e.g., “Hillarycare” and Obamacare); and when they put out proposals (e.g., premium support for Medicare and “repeal-and-replace” on Obamacare), they get attacked. So they conclude that they should never talk about the issue or put out proposals. Doubtless Tuesday’s election results will confirm that tendency for some.

Rather than using the election results to avoid health care, Republican lawmakers instead should lean in to the issue, to understand it and ascertain what concepts and policies they support. The left knows exactly what it wants from health care: More regulation, more spending, and more government control—leading ultimately to total government control.

Conservatives must act now to articulate an alternative vision, because the 800-pound gorilla of Washington policy will not disappear any time soon.

This post was originally published at The Federalist.

Why Smaller Premium Increases May Hurt Republicans in November

Away from last week’s three-ring circus on Capitol Hill, an important point of news got lost. In a speech on Thursday in Nashville, Secretary of Health and Human Services (HHS) Alex Azar announced that benchmark premiums—that is, the plan premium that determines subsidy amounts for individuals who qualify for income-based premium assistance—in the 39 states using the federal healthcare.gov insurance platform will fall by an average of 2 percent next year.

That echoes outside entities that have reviewed rate filings for 2019. A few weeks ago, consultants at Avalere Health released an updated premium analysis, which projected a modest premium increase of 3.1 percent on average—a fraction of the 15 percent increase Avalere projected back in June. Moreover, consistent with the HHS announcement on Thursday, Avalere estimates that average premiums will actually decline in 12 states.

On the other hand, however, given that Democrats have attempted to make Obamacare’s pre-existing condition provisions a focal point of their campaign, premium increases in the fall would remind voters that those supposed “protections” come with a very real cost.

How Much Did Premiums Rise?

The Heritage Foundation earlier this year concluded that the pre-existing condition provisions collectively accounted for the largest share of premium increases due to Obamacare. But how much have these “protections” raised insurance rates?

Overall premium trend data are readily available, but subject to some interpretation. An HHS analysis published last year found that in 2013—the year before Obamacare’s major provisions took effect—premiums in the 39 states using healthcare.gov averaged $232 per month, based on insurers’ filings. In 2018, the average policy purchased in those same 39 states cost $597.20 per month—an increase of $365 per month, or $4,380 per year.

Moreover, the trends hold for the individual market as a whole—which includes both exchange enrollees, most of whom qualify for subsidies, and off-exchange enrollees, who by definition cannot. The Kaiser Family Foundation estimated that, from 2013 to 2018, average premiums on the individual market rose from $223 to $490—an increase of $267 per month, or $3,204 per year.

Impact of Pre-Existing Condition Provisions

The HHS data suggest that premiums have risen by $4,380 since Obamacare took effect; the Kaiser data, slightly less, but still a significant amount ($3,204). But how much of those increases come directly from the pre-existing condition provisions, as opposed to general increases in medical inflation, or other Obamacare requirements?

The varying methods used in the actuarial studies make it difficult to compare them in ways that easily lead to a single answer. Moreover, insurance markets vary from state to state, adding to the complexity of analyses.

However, given the available data on both how much premiums rose and why they did, it seems safe to say that the pre-existing condition provisions have raised premiums by several hundreds of dollars—and that, taking into account changes in the risk pool (i.e., disproportionately sicker individuals signing up for coverage), the impact reaches into the thousands of dollars in at least some markets.

Republicans’ Political Dilemma

Those premium increases due to the pre-existing condition provisions are baked into the proverbial premium cake, which presents the Republicans with their political problem. Democrats are focusing on the impending threat—sparked by several states’ anti-Obamacare lawsuit—of Republicans “taking away” the law’s pre-existing condition “protections.” Conservatives can counter, with total justification based on the evidence, that the pre-existing condition provisions have raised premiums substantially, but those premium increases already happened.

If those premium increases that took place in the fall of 2016 and 2017 had instead occurred this fall, Republicans would have two additional political arguments heading into the midterm elections. First, they could have made the proactive argument that another round of premium increases demonstrates the need to elect more Republicans to “repeal-and-replace” Obamacare. Second, they could have more easily rebutted Democratic arguments on pre-existing conditions, pointing out that those “popular” provisions have sparked rapid rate increases, and that another approach might prove more effective.

Instead, because premiums for 2019 will remain flat, or even decline slightly in some states, Republicans face a more nuanced, and arguably less effective, political message. Azar actually claimed that President Trump “has proven better at managing [Obamacare] than the President who wrote the law.”

Conservatives would argue that the federal government cannot (micro)manage insurance markets effectively, and should not even try. Yet Azar tried to make that argument in his speech Thursday, even as he conceded that “the individual market for insurance is still broken.”

‘Popular’ Provisions Are Very Costly

The first round of premium spikes, which hit right before the 2016 election, couldn’t have come at a better time for Republicans. Coupled with Bill Clinton’s comments at that time calling Obamacare the “craziest thing in the world,” it put a renewed focus on the health-care law’s flaws, in a way that arguably helped propel Donald Trump and Republicans to victory.

This year, as paradoxical as it first sounds, flat premiums may represent bad news for Republicans. While liberals do not want to admit it publicly, polling evidence suggests that support for the pre-existing condition provisions plummets when individuals connect those provisions to premium increases.

The lack of a looming premium spike could also neutralize Republican opposition to Obamacare, while failing to provide a way that could more readily neutralize Democrats’ attacks on pre-existing conditions. Maybe the absence of bad news on the premium front may present its own bad political news for Republicans in November.

This post was originally published at The Federalist.

Summary of Health Care “Consensus” Group Plan

Tuesday, a group of analysts including those at the Heritage Foundation released their outline for a way to pass health-care-related legislation in Congress. Readers can find the actual health plan here; a summary and analysis follow below.

What Does the Health Plan Include?

The plan includes parameters for a state-based block grant that would combine funds from Obamacare’s insurance subsidies and its Medicaid expansion into one pot of money. The plan would funnel the block grant funds through the State Children’s Health Insurance Program (SCHIP), using that program’s pro-life protections. In general, states using the block grant would:

  • Spend at least half of the funds subsidizing private health coverage;
  • Spend at least half of the funds subsidizing low-income individuals (which can overlap with the first pot of funds);
  • Spend an unspecified percentage of their funds subsidizing high-risk patients with high health costs;
  • Allow anyone who qualifies for SCHIP or Medicaid to take the value of their benefits and use those funds to subsidize private coverage; and
  • Not face federal requirements regarding 1) essential health benefits; 2) the single risk pool; 3) medical loss ratios; and 4) the 3:1 age ratio (i.e., insurers can charge older customers only three times as much as younger customers).

Is That It?

Pretty much. For instance, the plan remains silent on whether to support an Obamacare “stability” (read: bailout) bill intended to 1) keep insurance markets intact during the transition to the block grant, and 2) attract the votes of moderate Republicans like Alaska Sen. Lisa Murkowski and Maine Sen. Susan Collins.

As recently as three weeks ago, former Sen. Rick Santorum was telling groups that the proposal would include the Collins “stability” language. However, as I previously noted, doing so would likely lead to taxpayer funding of abortion coverage, because there are few if any ways to attach pro-life protections to Obamacare’s cost-sharing reduction payments to insurers under the special budget reconciliation procedures the Senate would use to consider “repeal-and-replace” legislation.

What Parts of Obamacare Would the Plan Retain?

In short, most of them.

Taxes and Medicare Reductions: By retaining all of Obamacare’s spending, the plan would retain all of Obamacare’s tax increases—either that, or it would increase the deficit. Likewise, the plan says nothing about undoing Obamacare’s Medicare reductions. By retaining Obamacare’s spending levels, the plan would maintain the gimmick of double-counting, whereby the law’s payment reductions are used both to “save Medicare” and fund Obamacare.

Insurance Regulations: The Congressional Research Service lists 22 separate new federal requirements imposed on health insurance plans under Obamacare. The plan would retain at least 14 of them:

  1. Guaranteed issue of coverage—Section 2702 of the Public Health Service Act;
  2. Non-discrimination based on health status—Section 2705 of the Public Health Service Act;
  3. Extension of dependent coverage—Section 2714 of the Public Health Service Act;
  4. Prohibition of discrimination based on salary—Section 2716 of the Public Health Service Act (only applies to employer plans);
  5. Waiting period limitation—Section 2708 of the Public Health Service Act (only applies to employer plans);
  6. Guaranteed renewability—Section 2703 of the Public Health Service Act;
  7. Prohibition on rescissions—Section 2712 of the Public Health Service Act;
  8. Rate review—Section 2794 of the Public Health Service Act;
  9. Coverage of preventive health services without cost sharing—Section 2713 of the Public Health Service Act;
  10. Coverage of pre-existing health conditions—Section 2703 of the Public Health Service Act;
  11. Summary of benefits and coverage—Section 2715 of the Public Health Service Act;
  12. Appeals process—Section 2719 of the Public Health Service Act;
  13. Patient protections—Section 2719A of the Public Health Service Act; and
  14. Non-discrimination regarding clinical trial participation—Section 2709 of the Public Health Service Act.

Are Parts of the Health Plan Unclear?

Yes. For instance, the plan says that “Obamacare requirements on essential health benefits” would not apply in states receiving block grant funds. However, Section 1302 of Obamacare—which codified the essential health benefits requirement—also included two other requirements, one capping annual cost-sharing (Section 1302(c)) and another imposing minimum actuarial value requirements (Section 1302(d)).

Additionally, the plan on two occasions says that “insurers could offer discounts to people who are continuously covered.” House Republicans offered a similar proposal in their American Health Care Act last year, one that imposed penalties on individuals failing to maintain continuous coverage.

However, the plan includes no specific proposal on how insurers could go about offering such discounts, as the plan states that the 3:1 age rating requirement—and presumably only that requirement—would not apply for states receiving block grant funds. It is unclear whether or how insurers would have the flexibility under the plan to offer discounts for continuous coverage if all of Obamacare’s restrictions on premium rating, save that for age, remain.

This post was originally published at The Federalist.

Are the Heritage Foundation’s Politics Betraying Its Policy?

When Ronald Reagan used the axiom “Trust but verify,” he meant conservatives should closely monitor organizations and individuals to ensure that their deeds comport with their words. This axiom should apply to a health-care plan that a group the Heritage Foundation leads will unveil this week. While the group’s website claims its plan would “restore a properly functioning market in the health care sector to lower costs,” Heritage’s own policy analysis suggests otherwise.

Specifically, the Heritage plan would in no way alter what Heritage research describes as the biggest drivers of Obamacare’s “seismic effects on insurance markets.” Nor does the Graham-Cassidy health care bill, the legislative basis for the new effort. In fact, a recent version of the bill further undermines the purported “flexibility” that Graham-Cassidy promises to states, making it even less consistent with the federal principles Heritage invokes in lauding the measure.

Pre-Existing Condition Rules Drive Premium Increases

The largest effect on premiums consists of a cluster of [Obamacare] insurance access requirements—specifically the guaranteed issue requirement and the prohibitions on medical underwriting and applying coverage exclusions for pre-existing medical conditions under any circumstances. This cluster of regulations collectively accounts for the largest share of premium increases.

The paper discusses at length how these provisions “appear to have had the greatest effect on premiums,” raising rates for the young and healthy to subsidize the sick. While Obamacare supporters hoped the individual mandate would compel enough healthy individuals to offset those costs, high numbers of people chose to pay the mandate tax or received exemptions from the tax.

“The net result was a constellation of rules that repelled relatively healthy people and attracted those who could reasonably expect their medical bills to exceed their premiums—which Obamacare’s individual mandate simply failed to counteract,” Heritage’s report says.

Rhetoric versus Reality on Graham-Cassidy

After analyzing how the pre-existing conditions provisions proved the prime driver of premium increases, the March Heritage paper claims Graham-Cassidy provides the solution, calling it “a conceptual framework for empowering states to repair or ameliorate much of the market dislocation resulting from Obamacare.”

Leaving all those regulatory requirements in place might sound good, but—just as the March Heritage paper noted—it causes major policy problems:

Insurance companies are required to sell ‘just-in-time’ policies even if people wait until they are sick to buy coverage. That’s just like the Obama plan. There is growing evidence that many are gaming the system by purchasing health insurance when they need surgery or other expensive medical care, then dropping it a few months later.

Those words were written in 2010 to describe the effects of Massachusetts’ health care law, but they apply just as equally to the Heritage plan, and the Graham-Cassidy bill, in 2018. Surprisingly, then, they came from another member of the group that is releasing the plan this week.

Despite these organizations’ own prior statements opposing these costly insurance requirements, the plan released by Heritage and others would leave them in place at the federal level, hamstringing states’ ability to manage their own insurance markets—and belying the supposed goal of devolving power away from Washington.

The Bill Is Getting Worse

Unfortunately, however, the revised draft takes major steps that would undermine states’ ability to create multiple risk pools. Language on page 31 would reduce the block grant allotment for states maintaining multiple risk pools, by a percentage not yet specified. Other new provisions on pages 44 and 45 of the revised draft would allow states to create multiple risk pools only if they follow a series of bureaucratic parameters—parameters that a future Democratic administration would likely use to quash any state’s attempt to establish or maintain multiple risk pools.

Not Flexible, Not Federalism

Even as the Graham-Cassidy bill moves further to the left, Heritage seems insistent on chasing it ever leftward. The bill never addressed what Heritage itself called the prime drivers of premium increases. Now a more recent version further erodes the little flexibility that earlier drafts gave to states.

As I wrote more than one year ago, Republicans can choose to leave the status quo intact on Obamacare’s major regulations, or they can choose to keep their promise to voters to repeal the law. But they cannot do both. It comes down to a binary choice that simple. And Heritage has chosen a path that would effectively break the promise of repeal.

This post was originally published at The Federalist.

The Absurdity of the Justice Department’s Obamacare Lawsuit Intervention

Last summer, I wrote about how President Trump had created the worst of all possible outcomes regarding one Obamacare program. In threatening to cancel cost-sharing reduction payments to insurers, but not actually doing so, the administration forced insurers into raising premiums, while not complying with the rule of law by cutting off the payments outright.

Eventually, the administration finally did cut off the payments in October, but for several months, the uncertainty represented a self-inflicted wound. So too a brief filed by the Department of Justice (DOJ) late last week regarding an Obamacare lawsuit several states brought in February, which asked the court to strike down both Obamacare’s individual mandate and the most important of its federally imposed insurance regulations.

It takes a very unique set of circumstances to arrive at this level of opposition. Herewith the policy, legal, and political implications of DOJ’s actions.

Let’s Talk Policy First

Strictly as a policy matter, I agree with the general tenor of the Justice Department’s proposals. Last April, I analyzed Obamacare’s four major federally imposed insurance regulations:

  1. Guaranteed issue—accepting all applicants, regardless of health status;
  2. Community rating—charging all applicants the same premiums, regardless of health status;
  3. Essential health benefits—requiring plans to cover certain types of services; and
  4. Actuarial value—requiring plans to cover a certain percentage of each service.

I concluded that these four regulations represented a binary choice for policymakers: Either Congress should repeal them all, and allow insurers to price individuals’ health risk accordingly, or leave them all in place. Picking and choosing would likely result in unintended consequences.

The Justice Department’s brief asks the federal court to strike down the first two federal regulations, but not the last two. This outcome could have some unintended consequences, as a New York Times analysis notes.

But repealing the guaranteed issue and community rating regulations would remove the prime driver of premium increases under Obamacare. Those two regulations led rates for individual coverage to more than double from 2013 to 2017, necessitating the requirement for individuals to purchase, and employers to offer, health coverage, the subsidies to make coverage more “affordable,” and the tax increases and Medicare reductions used to fund them.

I noted last April that Republicans have a choice: They can either keep the status quo on pre-existing conditions or they can fulfill their promise to repeal Obamacare. They cannot do both. The DOJ brief acknowledges this dilemma, and that the regulations represent the heart of the Obamacare scheme.

Legal Question 1: Constitutionality

Roberts held that, while the federal government did not have the power to compel individuals to purchase health coverage under the Constitution’s Commerce Clause, Congress did have the power to impose a tax penalty on the non-purchase of coverage, and upheld the individual mandate on that basis.

But late last year, Congress set the mandate penalty to zero, with the provision taking effect next January. Both the plaintiff states and DOJ argue that, because the mandate will not generate revenue for the federal government beyond 2019, it can no longer function as a tax, and should be struck down as unconstitutional.

Ironically, if Congress took an unconstitutional act in setting the mandate penalty to zero, few seem to have spent little time arguing as much prior to the tax bill’s enactment last December. I opposed Congress’ action at the time, because I thought Congress needed to repeal more of Obamacare—i.e., the regulations discussed above. But few raised any concerns that setting the mandate penalty to zero represented an unconstitutional act:

  • While one school of thought suggests presidents should not sign unconstitutional legislation, President Trump signed the tax bill into law.
  • Likewise, President Trump did not issue a signing statement about the tax bill, seemingly indicating that the Trump administration had no concerns about the bill, constitutional or otherwise.
  • While in 2009 the Senate took a separate vote on the constitutionality of Obamacare, no one raised such a point of order during the Senate’s debate on the tax bill.
  • I used to work for one of the plaintiffs in the states’ lawsuit, the Texas Public Policy Foundation. TPPF put out no statement challenging the constitutionality of Congress’ move in the tax bill.

Legal Question 2: Severability

As others have noted, a court decision striking down the individual mandate as unconstitutional would by itself have few practical ramifications, given that Congress already set the mandate penalty to zero, beginning in January. The major fight lies in severability—either striking down the entire law, as the states request, or striking down the two major federal insurance regulations, as the Justice Department suggested last week.

The DOJ brief and the states’ original complaint both cite Section 1501(a) of Obamacare in making their claims to strike down more than just the mandate. DOJ cited that section—which called the mandate “essential to creating effective health insurance markets”—13 times in a 21-page brief, while the states cited that section 18 times in a 33-page complaint.

But that claim fails, for several reasons. First, the list of findings in Section 1501(a)(2) of the law discusses the mandate’s “effects on the national economy and interstate commerce.” In other words, this section of findings attempted to defend the individual mandate as a constitutional exercise of Congress’ power under the Commerce Clause—an argument Roberts struck down in the NFIB v. Sebelius ruling six years ago.

Second, the plaintiffs and the Justice Department briefs focus more on what a Congress eight years ago said—i.e., their non-binding findings to defend the individual mandate under the Commerce Clause—than what the current Congress did when it set the mandate penalty to zero, but left the rest of Obamacare intact. The Justice Department tried to retain a fig leaf of consistency by taking the same position regarding severability that the Obama administration did before the Supreme Court in 2012: that if the mandate falls, the guaranteed issue and community rating provisions (and only those provisions) should as well.

However, the Justice Department’s brief all but ignores Congress’s intervention last year. In a letter to Speaker of the House Paul Ryan (R-WI) regarding the lawsuit, Attorney General Jeff Sessions noted that “We presume that Congress legislates with knowledge of the [Supreme] Court’s findings.” A corollary to that maxim should find that the administration takes decisions with knowledge of Congress’ actions.

But rather than observing how this Congress zeroed out the mandate penalty while leaving the rest of Obamacare intact, DOJ claimed that the 2010 findings should control, because Congress did not repeal them. (Due to procedural concerns surrounding budget reconciliation, Senate Republicans arguably could not have repealed them in last year’s tax bill even if they wanted to.)

Third, as the brief by a series of Democratic state attorneys general—who received permission to intervene in the case—makes plain, Republican members of Congress said repeatedly during the tax bill debate last year that they were not changing any other part of the law. For instance, during the Senate Finance Committee markup of the tax bill, the committee’s chairman, Orrin Hatch (R-UT), said the following:

Let us be clear, repealing the [mandate] tax does not take anyone’s health insurance away. No one would lose access to coverage or subsidies that help them pay for coverage unless they chose not to enroll in health coverage once the penalty for doing so is no longer in effect. No one would be kicked off of Medicare. No one would lose insurance they are currently getting from insurance carriers. Nothing—nothing—in the modified mark impacts Obamacare policies like coverage for preexisting conditions or restrictions against lifetime limits on coverage….

The bill does nothing to alter Title 1 of Obamacare, which includes all of the insurance mandates and requirements related to preexisting conditions and essential health benefits.

As noted above, I want Congress to repeal more of Obamacare—all of it, in fact. But what I want to happen and what Congress did are two different things. When Congress explicitly set the mandate penalty to zero but left the rest of the law intact, I should not (and will not) go running to an activist judge trying to get him or her to ignore the will of Congress and strike all of it down regardless. That’s what liberals do.

Too Cute by Half Problem 1: Legal Outcomes

The brief the Democratic attorneys general filed suggested another possible outcome—one that would not please the plaintiffs in the lawsuit. While the attorneys general attempted to defend the mandate’s constitutionality despite the impending loss of the tax penalty, they offered another solution should the court find the revised mandate unconstitutional:

Under long-standing principles of statutory construction, when a legislature purports to amend an existing statute in a way that would render the statute (or part of the statute) unconstitutional, the amendment is void, and the statute continues to operate as it did before the invalid amendment was enacted.

It remains to be seen whether the courts will find this argument credible. But if they do, a lawsuit seeking to strike down all of Obamacare could actually restore part of it, by getting the court to reinstate the tax penalties associated with the mandate.

This scenario could get worse. In 2015, the Senate parliamentarian offered guidance that Congress could set the mandate penalty to zero, but not repeal it outright, as part of a budget reconciliation bill. Republicans used this precedent to zero-out the mandate in last year’s tax bill. But a court ruling stating that Congress cannot constitutionally set the mandate penalty to zero, and must instead repeal it outright, means Senate Republicans would have to muster 60 votes to do so—an outcome meaning the mandate might never get repealed.

In June 2015, the Supreme Court issued a ruling in the case of King v. Burwell. In its opinion, the court ruled that individuals in states that did not establish their own exchanges (and used the federally run healthcare.gov instead) could qualify for health insurance subsidies. By codifying an ambiguity in the Obamacare statute in favor of the subsidies, the court’s ruling prevented the Trump administration from later taking executive action to block those subsidies.

In King v. Burwell, litigating over uncertainty in Obamacare ended up precluding a future administration from taking action to dismantle it. The same thing could happen with this newest lawsuit.

Too Cute by Half Problem 2: Legislative Action

Sooner or later, someone will recognize an easy solution exists that would solve both the problem of constitutionality and severability: Congress passing legislation to repeal the mandate outright, after the tax bill set the penalty to zero. But this scenario could lead to all sorts of inconsistent, yet politically convenient, outcomes:

  • Democrats attacking Republicans over last week’s DOJ brief might oppose repealing a (now-defanged) individual mandate, because it would remove what they view as a powerful political issue heading into November’s midterm elections;
  • Republicans afraid of Democrats’ political attacks might say they repealed a part of Obamacare (i.e., the individual mandate) outright to “protect” the rest of Obamacare (i.e., the federal regulations and other assorted components of the law) from being struck down by an activist judge; and
  • Some on the Right might oppose Congress taking action to repeal “just” the individual mandate, because they want the courts to strike down the entire law—even though such a job rightly lies within Congress’ purview.

As others have noted, these contortionistic, “Through the Looking Glass” scenarios speak volumes about the tortured basis for this lawsuit. The Trump administration should spend less time writing briefs that support legislating from the bench by unelected judges, and more time working with Congress to do its job and repeal the law itself.

This post was originally published at The Federalist.

24 New Federal Requirements Added to the Graham-Cassidy Bill

Last week, I outlined how a white paper Sen. Bill Cassidy (R-LA) released essentially advocated for Obamacare on steroids. That plan would keep the law’s most expensive (and onerous) federal insurance requirements, while calling for more taxpayer dollars to make that expensive coverage more “affordable.”

Unfortunately, Cassidy also would extend this highly regulatory approach beyond mere white papers and into legislation. A recently disclosed copy of a revised Graham-Cassidy bill—originally developed by Cassidy and Sen. Lindsey Graham (R-SC) last fall—imposes two dozen new requirements on states. These requirements would undermine the bill’s supposed goal of “state flexibility,” and could lead to a regime more onerous and expensive than Obamacare itself.

18 New ‘Adequate and Affordable’ Coverage Rules

Specifically, that coverage must:

  • Include four categories of basic services defined in the State Children’s Health Insurance Program (SCHIP) statute:
    • Inpatient and outpatient hospital services;
    • Physicians’ surgical and medical services;
    • Laboratory and X-ray services, and
    • Well-baby and well-child care, including age-appropriate immunizations;
  • Include three categories of additional services also defined in the SCHIP statute:
    • Coverage of prescription drugs;
    • Vision services; and
    • Hearing services;
  • Include two other categories of services as defined by Obamacare:
    • Mental health and substance use disorder services, including behavioral health treatment; and
    • Rehabilitative and habilitative services and devices;
  • Comply with actuarial value standards set by the SCHIP statute:
    • Cover at least 70 percent of estimated health expenses for the average consumer; and
  • Comply with requirements included in eight separate sections of the Public Health Service Act, as amended by Obamacare:
    • Section 2701—Rating premiums only based on age (with older applicants charged no more than three times younger applicants), family size, geography, and tobacco use;
    • Section 2702—Required acceptance for every individual or employer who applies for coverage (i.e., guaranteed issue);
    • Section 2703—Guaranteed renewability of coverage;
    • Section 2704—Prohibition on pre-existing condition exclusions;
    • Section 2705—Prohibition on discriminating against individuals based on health status;
    • Section 2708—Prohibition on excessive waiting periods;
    • Section 2711—Prohibition on annual or lifetime limits; and
    • Section 2713—Requiring first-dollar coverage of preventive services without cost-sharing (i.e., deductibles and co-payments).

As noted above, “adequate and affordable health insurance coverage” would include many of Obamacare’s insurance requirements, and in at least one way would exceed them. Whereas Section 1302(d) of Obamacare requires selling insurance with an actuarial value—that is, the percentage of medical expenses paid for the average individual—of at least 60 percent, the revised Graham-Cassidy would require “adequate and affordable” coverage with an actuarial value of at least 70 percent.

If asked, Graham and Cassidy might state that these requirements would only apply to a certain subset of the population. After all, the revised bill text indicates that each state “shall ensure access to adequate and affordable health insurance coverage (as defined in clause (ii))”—the clause referring to the 18 separate requirements listed above—“for [high-risk individuals].” The bill lists the brackets in the original, which might indicate that Cassidy’s office intends to apply these 18 separate coverage requirements only to plans that high-risk persons purchase.

Thankfully, the new draft removes the “population adjustment factor” allowing CMS to rewrite the block grant formula unilaterally. But even as it took away CMS’ power to alter the funding formula, new language on page 15 of the revised draft allows CMS to cancel states’ block grant funds for “substantial noncompliance.” That provision, coupled with the revised bill’s lack of definition regarding “affordable” coverage and “high-risk individual” provides a future Democratic administration with two clear ways to hijack the block grant program.

For instance, a new administration could define “high-risk individual” so broadly that it would apply to virtually all Americans, subjecting them to the 18 costly coverage requirements. A new administration could also define “affordable” in such a manner—for instance, premiums may not exceed 5 percent of an individual’s income—that states would have to subsidize insurance with sizable amounts of state funds, in addition to the federal dollars included in the block grant. Any state failing to comply with these edicts could see its entire block grant yanked for “substantial noncompliance” with the bureaucratically imposed guidelines.

It seems paradoxical to assert that a bill can be both too prescriptive, imposing far too many requirements on states that undermine the supposed goal of “state flexibility,” and too vague, giving vast amounts of authority to federal bureaucrats. Yet somehow the section on “adequate and affordable health coverage” manages to do both.

Two New Required Uses of Block-Grant Funds

Supporters of the bill would argue that these supposed “guardrails” will prevent states from subsidizing Medicaid coverage, or creating some other government-run health program. But as I noted last week, Obamacare has its own “guardrails” regarding state waivers, which undermine any attempt to deregulate insurance markets.

By adding these new “guardrails,” Graham-Cassidy would essentially replicate Obamacare, albeit with slightly different policy objectives: “The Cassidy plan would give states the ‘flexibility’ to do what Bill Cassidy wants them to do, and only what Bill Cassidy wants them to do. That isn’t flexibility at all.”

Block Grant Reductions with Multiple Risk Pools

On Page 31, the bill includes new language requiring a reduction in block-grant funds, by a percentage not specified, for states electing to create multiple risk pools. Under current law, Section 1312(c) of Obamacare requires insurers to place all individual insurance market enrollees—whether they purchase coverage through the exchange or not—in a single risk pool.

If a state elects to choose multiple risk pools and uses a “substantial portion” of its block grant to subsidize insurance with an actuarial value of under 50 percent, then the state would see an unspecified reduction in its block grant. This language contains many of the flaws of the other provisions described above: It nowhere defines what comprises a “substantial portion” of the block grant, and penalizes states that may choose to create multiple risk pools and subsidize only catastrophic insurance coverage, thus belying Graham-Cassidy’s promise of “state flexibility.”

3 New Requirements for State Waivers

The revised Graham-Cassidy text moves and alters language regarding state waivers of Obamacare’s federal insurance requirements, and in so doing makes three substantive changes. (The original language started in the middle of page 143 of the bill; the new language begins on the top of page 42 of the revised bill.)

First, and perhaps most disturbingly, the revised bill requires the Department of Health and Human Services to waive Obamacare’s insurance requirements for a state only if “such state establishes an equivalent requirement applicable to such coverage in such state.” Taken literally, this provision could mean that states could “opt-out” of Obamacare’s federal requirements if and only if they enshrine those exact same requirements in state law—rendering any supposed “flexibility” under Graham-Cassidy completely nonexistent.

Graham and Cassidy may not have meant to craft language with such a literal interpretation. They may mean to say, for instance, that a state can waive out of Obamacare’s age-rating requirements (which prohibit insurers from charging older people more than three times what they charge younger people) if they establish a more permissive regime—for instance, five-to-one age rating—on the state level.

But taken literally, that’s not what the current bill text says. That vague language raises serious questions about the authors’ intent, and why they chose such unclear, and arguably sloppy, bill language.

Second, the section imposes two new requirements on states selecting multiple risk pools. As noted above, those states would have to comply with the 18 new requirements regarding “adequate and affordable” health coverage, and states creating multiple risk pools could see their block grant reduced as a result.

In addition, however, states must also guarantee that insurers offering coverage in one risk pool offer coverage in all of them. Moreover, premiums charged “by a health insurance issuer for the same health coverage offered in different risk pools in the state [may] not vary by more than 3 to 1.”

The first requirement echoes the Consumer Freedom Amendment offered by Sen. Ted Cruz (R-TX) last year. That amendment allowed insurers to offer plans that did not comply with Obamacare’s requirements, so long as they continued to offer one Obamacare-compliant plan. The second requirement would effectively limit the extent to which insurers could charge individuals more on the basis of pre-existing conditions or health status.

Two Dozen (More) Reasons for State Concern

Both individually and collectively, these two dozen new requirements inserted into the most recent version of Graham-Cassidy present problems for conservatives. The myriad requirements would sharply limit the bill’s ability to deliver lower premiums to consumers—one major goal of “repeal-and-replace” legislation.

More broadly, though, the revised bill drifts further away from any semblance of conservative objectives. While Graham-Cassidy purports to provide more flexibility to states, the revised bill would instead ensnare them in numerous requirements that would impede any attempt at innovation.

Like the proverbial Lilliputians who attempted to tie down Gulliver, the new bill looks to rob states of their ability to manage their own insurance markets and lower premiums for residents, one federal requirement at a time.

This post was originally published at The Federalist.

Legislative Bulletin: Summary of Revised Graham-Cassidy Legislation

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

Summary of CBO Score

On Monday evening, the Congressional Budget Office (CBO) released a preliminary estimate of the Graham-Cassidy bill. CBO concluded that the bill would comply with reconciliation parameters—namely, that it would reduce the deficit by at least as much as the underlying reconciliation vehicle (the House-passed American Health Care Act), reduce the deficit by at least $1 billion in each of its two titles in its first ten years, and not increase the deficit overall in any of the four following decades.

Although it did not include any specific coverage or premium numbers, CBO did conclude that the bill would likely decrease coverage by millions compared to the current policy baseline. The report estimated that the bill’s block grant would spend about $230 billion less than current law—a 10 percent reduction overall (an average 30 percent reduction for Medicaid expansion states, but an average 30 percent increase for non-expansion states). Moreover, CBO believes at least $150 billion in block grant funding would not be spent by the end of the ten-year budget window.

CBO believes that “most states would eventually make changes in the regulations for their non-group market in order to stabilize it and would use some funds from the block grants to facilitate those changes.” Essentially, current insurance regulations mean that markets would become unstable without current law subsidies, such that states would use a combination of subsidies and changes in regulations to preserve market stability.

CBO believes that most Medicaid expansion states would attempt to use block grant funding to create Medicaid-like programs for their low-income residents. However, the analysis concludes that by 2026, those states’ block grants would roughly equal the projected cost of their current Medicaid expansion—forcing them to choose between “provid[ing] similar benefits to people in a [Medicaid] alternative program and extend[ing] support to others” further up the income scale. In those cases, CBO believes “most of those states would then choose to provide little support to people in the non-group market because doing so effectively would be the more difficult task.”

Overall, CBO believes that the bill would reduce insurance coverage, because of its repeal of the subsidies, Medicaid expansion, and the individual mandate. The budget office believes that states with high levels of coverage under Obamacare would not receive enough funds under the revised block grant to match their current coverage levels, while states with lower levels of coverage would spend the money slowly, in part because they lack the infrastructure (i.e., technology, etc.) to distribute subsidies easily. CBO also believes that employment-based coverage would increase under the bill, because some employers would respond to changes in the individual market by offering coverage to their workers.

With respect to the Medicaid reforms in the bill, CBO concludes that most “states would not have substantial additional flexibility” under the per capita caps. Some states with declining populations might choose the block grant option, but the grant “would not be attractive in most states experiencing population growth, as the fixed block grant would not be adjusted for such growth.” States could reduce their spending by reducing provider payment rates; optional benefit categories; limiting eligibility; improving care delivery; or some combination of the approaches.

For the individual market, CBO expresses skepticism about the timelines in the bill. Specifically, its analysis found that states’ initial options would “be limited,” because implementing new health programs by 2020 would be “difficult:”

To establish its own system of subsidies for coverage in the nongroup market related to people’s income, a state would have to enact legislation and create a new administrative infrastructure. A state would not be able to rely on any existing system for verifying eligibility or making payments. It would need to establish a new system for enrolling people in nongroup insurance, verify eligibility for tax credits or other subsidies, certify insurance as eligible for subsidies, and ultimately ensure that the payments were correct. Those steps would be challenging, particularly if the state chose to simultaneously change insurance market regulations.

While CBO believes that states that expanded Medicaid would be likely to create programs for populations currently eligible for subsidies (i.e., those households with incomes between one and four times poverty), it notes that such states “would be facing large reductions in funding compared with the amounts under current law and thus would have trouble paying for a new program or subsidies for those people.”

CBO believes that without subsidies, and with current insurance regulations in place, a “death spiral” would occur, whereby premiums would gradually increase and insurers would drop out of markets. (However, “if a state required individuals to have insurance, some healthier people would enroll, and premiums would be lower.”) To avoid this scenario, CBO believes that “most states would eventually modify various rules to help stabilize the non-group market,” thereby increasing coverage take-up when compared to not doing so. However, “coverage for people with pre-existing conditions would be much more expensive in some of those states than under current law.”

While widening age bands would “somewhat increase insurance coverage, on net,” CBO notes that “insurance covering certain services not included in the scope of benefits to become more expensive—in some cases, extremely expensive.” Moreover, some medically underwritten individuals (i.e., subject to premium changes based on health status) would become uninsured, while others would instead obtain employer coverage.

Finally, CBO estimated that the non-coverage provisions of the bill would increase the deficit by $22 billion over ten years. Specific estimates for those provisions are integrated into the summary below.

Summary of Changes Made

On Sunday evening, the bill’s sponsors released revised text of their bill. Compared to the original draft, the revised bill:

  • Strikes language repealing sections of Obamacare related to eligibility determinations (likely to comply with the Senate’s “Byrd rule” regarding budget reconciliation);
  • Changes the short-term “stability fund” to set aside 5 percent of funds for “low-density states,” which some conservatives may view as a carve-out for certain states similar to that included in July’s Better Care Reconciliation Act;
  • Re-writes waiver authority, but maintains (and arguably strengthens) language requiring states to “maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” which some conservatives may view as imposing limiting conditions on states that wish to reform their insurance markets;
  • Requires states to certify that they will “ensure compliance” with sections of the Public Health Service Act relating to: 1) the under-26 mandate; 2) hospital stays following births; 3) mental health parity; 4) re-constructive surgery following mastectomies; and 5) genetic non-discrimination;
  • Strikes authority given to the Health and Human Services Secretary in several sections, and replaces it with authority given to the Centers for Medicare and Medicaid Services (CMS) Administrator;
  • Includes a new requirement that at least half of funds provided under the Obamacare replacement block grant must be used “to provide assistance” to households with family income between 50 and 300 percent of the poverty level;
  • Requires CMS Administrator to adjust block grant spending upward for a “low-density state” with per capita health care spending 20 percent higher than the national average, increasing allocation levels to match the higher health costs—a provision some conservatives may consider an earmark for specific states;
  • Imposes new requirement on CMS Administrator to notify states of their 2020 block grant allocations by November 1, 2019—a timeline that some may argue will give states far too little time to prepare and plan for major changes to their health systems;
  • Slows the transition to the new Obamacare replacement block grant formula outlined in the law, which now would not fully take effect until after 2026—even though the bill does not appropriate block grant funds for years after 2026;
  • Gives the Administrator the power not to make an annual adjustment for risk in the block grant;
  • Strikes the block grant’s annual adjustment factor for coverage value;
  • Delays the block grant’s state population adjustment factor from 2020 until 2022—but retains language giving the CMS Administrator to re-write the entire funding allocation based on this factor, which some conservatives may view as an unprecedented power grab by federal bureaucrats;
  • Re-writes rules re-allocating unspent block grant allocation funds;
  • Prohibits states from receiving more than a 25 percent year-on-year increase in their block grant allocations;
  • Makes other technical changes to the block grant formula;
  • Changes the formula for the $11 billion contingency fund provided to low-density and non-expansion states—25 percent ($2.75 billion) for low-density states, 50 percent ($5.5 billion) for non-Medicaid expansion states, and 25 percent ($2.75 billion) for Medicaid expansion states;
  • Includes a $750 million fund for “late-expanding” Medicaid states (those that did not expand Medicaid under Obamacare prior to December 31, 2016), which some conservatives may consider an earmark, and one that encourages states to embrace Obamacare’s Medicaid expansion to the able-bodied;
  • Includes $500 million to allow pass-through funding under Section 1332 Obamacare waivers to continue for years 2019 through 2023 under the Obamacare replacement block grant;
  • Strikes language allowing for direct primary care to be purchased through Health Savings Accounts, and as a medical expense under the Internal Revenue Code;
  • Strikes language reducing American territories’ Medicaid match from 55 percent to 50 percent;
  • Restores language originally in BCRA allowing for “late-expanding Medicaid states” to select a shorter period for their per capita caps—a provision that some conservatives may view as an undue incentive for certain states that expanded Medicaid under Obamacare;
  • Restores language originally in BCRA regarding reporting of data related to Medicaid per capita caps;
  • Strikes language delaying Medicaid per capita caps for certain “low-density states;”
  • Includes new language perpetually increasing Medicaid match rates on the two highest states with separate poverty guidelines issued for them in 2017—a provision that by definition includes only Alaska and Hawaii, which some conservatives may view as an inappropriate earmark;
  • Strikes language allowing all individuals to purchase Obamacare catastrophic coverage beginning in 2019;
  • Strikes language clarifying enforcement provisions, particularly regarding abortion;
  • Allows states to waive certain provisions related to insurance regulations, including 1) essential health benefits; 2) cost-sharing requirements; 3) actuarial value; 4) community rating; 5) preventive health services; and 6) single risk pool;
  • Requires states to describe its new insurance rules to the federal government, “except that in no case may an issuer vary premium rates on the basis of sex or on the basis of genetic information,” a provision that some conservatives may view as less likely to subject the rules to legal challenges than the prior language; and
  • Retains language requiring each waiver participant to receive “a direct benefit” from federal funds, language that some conservatives may view as logistically problematic.

Full Summary of Bill (as Revised)

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

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

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

Title I

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

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017) must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $11.7 billion over ten years—$8.5 billion in spending, and $3.2 billion in revenue.

Repeals the subsidy regime entirely after December 31, 2019.

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

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

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

Includes new language setting aside 5 percent of stability fund dollars for “low-density states”—a provision which some conservatives may oppose as an earmark for Alaska and other similar states.

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

Expands BCRA criteria for appropriate use of funds by states, to include assistance for purchasing individual insurance, and “provid[ing] health insurance coverage for individuals who are eligible for” Medicaid, as well as the prior eligible uses under BCRA: to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing.

However, states may spend no more than 15 percent of their resources on the Medicaid population (or up to 20 percent if the state applies for a waiver, and the Department of Health and Human Services concludes that the state is using its funds “to supplement, and not supplant,” the state Medicaid match). In addition, states must spend at least half of their funds on “provid[ing] assistance” to families with incomes between 50 and 300 percent of the federal poverty level. Some conservatives may believe these restrictions belie the bill’s purported goal of giving states freedom and flexibility to spend the funds as they see fit.

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

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

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

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

  1. Risk Adjustment:      The bill would phase in risk adjustment over four years (between 2023 and 2026), and limit the risk adjustment modification to no more than 10 percent of the overall allotment. Risk adjustment would be based on clinical risk factors for low-income individuals (as defined above). The Centers for Medicare and Medicaid Services (CMS) Administrator could cancel the risk adjustment factor in the absence of sufficient data.
  2. Population Adjustment:              Permits (but does not require) the Administrator to adjust allocations for years after 2022 according to a population adjustment factor. Requires CMS to “develop a state specific population adjustment factor that accounts for legitimate factors that impact the health care expenditures in a state”—such as demographics, wage rates, income levels, etc.—but as noted above, does not require CMS to adjust allocations based upon those factors.

Notwithstanding the above, states could not receive a year-on-year increase in funding of more than 25 percent.

Requires the Administrator to adjust block grant spending upward for a “low-density state” with per capita health care spending 20 percent higher than the national average, increasing allocation levels to match the higher health costs—a provision some conservatives may consider an inappropriate earmark for Alaska. Imposes new requirement on the Administrator to notify states of their 2020 block grant allocations by November 1, 2019—a timeline that some may argue will give states far too little time to prepare and plan for major changes to their health systems.

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

Provides $750 million for “late-expanding” Medicaid states—those that did not expand Medicaid under Obamacare prior to December 31, 2015—which some conservatives may consider an earmark, one that encourages states that have embraced Obamacare’s Medicaid expansion to the able-bodied. Also includes $500 million to allow pass-through funding under Section 1332 Obamacare waivers to continue for years 2019 through 2023.

Grant Application:  Requires states applying for grant funds to outline the intended uses of same. Specifically, the state must describe how it “shall maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” along with “such other information as necessary for the Administrator to carry out this subsection”—language that could be used by a future Democratic Administration, or federal courts, to undermine the waiver program’s intent.

Explicitly requires states to “ensure compliance” with several federal insurance mandates:

  1. Coverage of “dependents” under age 26;
  2. Hospital stays following deliveries;
  3. Mental health parity;
  4. Reconstructive surgery following mastectomies; and
  5. Genetic non-discrimination.

Some conservatives may note that these retained federal mandates belie the notion of state flexibility promised by the legislation.

Contingency Fund:               Appropriates a total of $11 billion—$6 billion for calendar year 2020, and $5 billion for calendar 2021—for a contingency fund for certain states. Half of the funding ($5.5 billion total) would go towards states that had not expanded Medicaid as of September 1, 2017, with the remaining one-quarter ($2.75 billion) going towards “low-density states”—those with a population density of fewer than 15 individuals per square mile—and another one-quarter ($2.75 billion) going towards states that did expand Medicaid.

Implementation Fund:        Provides $2 billion to implement programs under the bill. Costs $2 billion over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

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

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

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

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

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

Repeals the enhanced federal match (currently 95 percent, declining slightly to 90 percent) associated with Medicaid expansion, effective in 2020. Also repeals provisions regarding the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19.3 billion over ten years.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid from three months to two months. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility. Saves $800 million 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. Adds to existing exemptions (drafted in BCRA) provisions exempting those in inpatient or intensive outpatient substance abuse treatment and full-time students from Medicaid work requirements. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.6 percent in fiscal year 2021, 5.2 percent in fiscal year 2022, 4.8 percent in fiscal year 2023, 4.4 percent in fiscal year 2024, and 4 percent in fiscal year 2025 and future fiscal years—a change from BCRA, which reduced provider taxes to 5 percent in 2025 (0.2 percent reduction per year, as opposed to 0.4 percent under the Graham-Cassidy bill). Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $13 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).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Disproportionate Share Hospital (DSH) Payments:     Adjusts reductions in DSH payments to reflect shortfalls in funding for the state grant program described above. For fiscal years 2021 through 2025, states receiving grant allocations that do not keep up with medical inflation will have their DSH reductions reduced or eliminated; in fiscal year 2026, states with grant shortfalls will have their DSH payments increased. Costs $17.9 billion over ten years.

High-Poverty States:            Provides for a permanent increase in the federal Medicaid match for two states, based on poverty guidelines established for 2017. Specifically, provides for a 25 percent increase to the state with the “highest separate poverty guideline for 2017,” and a 15 percent increase to the state with the “second highest separate poverty guideline for 2017”—provisions that by definition would apply only to Alaska and Hawaii, respectively. Some conservatives may be concerned first that these provisions represent inappropriate earmarks, and further that they would change federal spending in perpetuity based on poverty determinations made for a single year. Costs $7.2 billion over ten years.

Title II

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

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

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

Grant Conditions:    Sets additional conditions for the grant program established in Title I of the bill. States may submit applications waiving certain provisions currently in federal statute:

  1. Essential health benefits;
  2. Cost-sharing requirements;
  3. Actuarial value requirements, including plan metal tiers (e.g., bronze, silver, gold, and platinum);
  4. Community rating—although states may not be able to vary premiums based on health status, due to contradictory language in this section;
  5. Preventive health services; and
  6. Single risk pool.

Requires states to submit their revised rules to the federal government, “except that in no case may an issuer vary premium rates on the basis of sex or on the basis of genetic information.” Some conservatives may view this language as less likely to spark new legal challenges than the prior wording, which prohibited insurance changes based on “membership in a protected class.” However, some conservatives may also find that the mutually contradictory provisions over whether and how states can vary insurance rates may spark other legal challenges.

The waivers only apply to an insurer receiving funding under the state program, and “to an individual who is receiving a direct benefit” from the grant—which does not include reinsurance. In other words, each individual must receive some direct subsidy, rather than just general benefits derived from the broader insurance pool. Some conservatives may be concerned that, by tying waiver of regulations so closely to receipt of federal grant funds, this provision would essentially provide limited regulatory relief. Furthermore, such limited relief would require states to accept federal funding largely adjudicated and doled out by unelected bureaucrats.

Some conservatives may be concerned that, while well-intentioned, these provisions do not represent a true attempt at federalism—one which would repeal all of Obamacare’s regulations and devolve health insurance oversight back to the states. It remains unclear whether any states would actually waive Obamacare regulations under the bill; if a state chooses not to do so, all of the law’s costly mandates will remain in place there, leaving Obamacare as the default option.

Some conservatives may view provisions requiring anyone to whom a waiver applies to receive federal grant funding as the epitome of moral hazard—ensuring that individuals who go through health underwriting will receive federal subsidies, no matter their level of wealth or personal circumstances. By requiring states to subsidize bad actors—for instance, an individual making $250,000 who knowingly went without health coverage for years—with federal taxpayer dollars, the bill could actually raise health insurance premiums, not lower them. Moreover, some conservatives may be concerned that—because the grant program funding ends in 2027, and because all individuals subject to waivers must receive grant funding—the waiver program will effectively end in 2027, absent a new infusion of taxpayer dollars.

Legislative Bulletin: Summary of Graham-Cassidy Health Care Bill

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

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

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

Title I

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

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

Repeals the subsidy regime entirely after December 31, 2019.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title II

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

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

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

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

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

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

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

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

Pre-Existing Conditions Are the Problem

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

This Is Not Repeal

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

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

True Federalism the Solution

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

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

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

This post was originally published at The Federalist.