Four Better Ways to Address Pre-Existing Conditions Than Obamacare

n a recent article, I linked to a tweet promoting alternatives to Obamacare’s pre-existing condition regulations, which have raised health insurance premiums for millions of Americans.

I offered those solutions when asked about a Republican alternative to Obamacare, and specifically the pre-existing condition provisions. While I no longer work in Congress, and therefore cannot readily get legislative provisions drafted and scored, I did want to elaborate on the concepts briefly mentioned, to show that other solutions to the pre-existing condition problem do exist.

1. Health Status Insurance

I mentioned both “renewal guarantees” and “health status insurance,” two relatively interchangeable terms, in my tweet. Both refer to the option of buying coverage at some point in the future—insurance against developing a health condition that makes one uninsurable.

Other forms of insurance use these types of riders frequently. For instance, I purchased a long-term disability policy when I bought my condo, to protect myself if I could no longer work and pay my mortgage. The policy came with two components—the coverage I have now, and pay for each year, along with a rider allowing me to double my coverage amount (i.e. the monthly payment I would receive if I became disabled) without going through the application or underwriting process again.

Since I bought that policy in 2008, my doctors diagnosed me with hypertension in 2012, and I went through two reconstructive surgeries on my left ankle. I don’t know if these ailments would prevent me from buying a disability policy now if I went out and applied for one. But because I purchased that rider with my original policy in 2008, I don’t need to worry about it. If I want more disability coverage, I can obtain it by paying the additional premium, no questions asked.

Health status insurance would complement employer-sponsored coverage. Most people get their coverage through their employers. Because employers heavily subsidize the coverage, and the federal government provides tax breaks for employer-sponsored plans, more than three in four people who are offered employer-sponsored insurance sign up for it.

But employer-based insurance by definition isn’t portable. When you switch your job, or (worse yet) lose your job because you’re too sick to work, you lose your coverage. Health status insurance would get around that portability problem. Individuals could sign up for their employer plan but pay for health status insurance “on the side.”

This coverage, which they and not their employer own, would protect them in case they develop a pre-existing condition or move to a job that doesn’t provide health insurance. It would also cost a lot less than buying a complete insurance plan—remember, they’re paying for the option to purchase insurance at a later date, not the insurance itself.

2. Insurance Portability

A proposed regulation issued by the Trump administration last month would permit just that. Under the proposal, employers could provide fixed sums to their employees to buy individually owned insurance—that is, a policy the employee buys and holds—through Health Reimbursement Arrangements (HRAs). Employees could pay any “leftover” premiums not covered by the employer subsidy on a pre-tax basis, as they do with their current, employer-owned coverage, through paycheck withholding.

I recently wrote about the regulation; feel free to read that article for greater detail. But as with health status insurance, better portability of individual coverage would allow people to buy—and hold, and keep—coverage before they develop a pre-existing condition, reducing the number of people who have to worry about losing their coverage when battling a difficult illness.

3. High-Risk Pools

Of course, health status insurance only helps those who purchase it prior to becoming sick. For people who already have a pre-existing condition, perhaps because of an ailment acquired at birth or in one’s youth, high-risk pools provide another possible solution.

Critics of risk pools generally cite two reasons to argue against this model as a workable policy solution. First, risk pools prior to Obamacare were not well-funded—in many cases, a true enough criticism. While some state pools worked well and offered generous subsidies (even income-based subsidies in some states), others did not.

It would take a fair bit of federal funding to set up a solid network of state high-risk pools. One article, published in National Affairs a few months after Obamacare’s enactment, estimated that such pools would require $15-20 billion per year in funding—probably more like $20-30 billion now, given the constant rise in health care costs. This figure represents a sizable sum, but less than the overall cost of Obamacare, or even its insurance subsidies ($57 billion this fiscal year alone).

Second, risk pool critics dislike the surcharges that many risk pools applied. Most pools capped monthly premiums for enrollees at 150 or 200 percent of standard insurance rates. Of course, individuals with chronic heart failure or some other costly condition generally incur much higher actual costs—costs that the pool worked to subsidize—but some believe that making individuals with pre-existing conditions pay a 50 to 100 percent premium over healthy individuals discriminates against the sick.

Personally, when designing a high-risk pool, I would distinguish between individuals who maintained continuous coverage prior to joining the pool and those who did not. Charging higher premiums to individuals who maintained continuous coverage seems unfair. On the other hand, it seems very reasonable to impose a surcharge for individuals who joined a high-risk pool because they didn’t purchase insurance until after they became sick.

As a small government conservative, I generally oppose intrusive attempts like an individual mandate to require individuals to behave in a certain manner. While I view going without health insurance an unwise move, I believe in the right of people to make bad decisions. However, I also believe in people paying the consequences of those bad decisions—and a surcharge on individuals who sign up for a high-risk pool while lacking continuous coverage would do just that.

4. Direct Primary Care

Direct primary care, which encompasses a personal relationship with a physician or group of physicians, can help manage individuals with chronic (and potentially costly) diseases. In most cases, patients pay a monthly or annual subscription fee to the practice, which covers unlimited doctor visits, as well as phone or electronic consultations and some limited diagnostic tests. Patients can get referrals to specialist care, or purchase a catastrophic insurance policy to cover expenses not included in the subscription fee.

Of course, primary care would not work well for a patient with advanced cancer, who needs costly pharmaceutical therapies or other very specialized care. But for patients with chronic conditions like diabetes, COPD, or chronic heart failure, direct primary care may offer a way better to manage the disease, potentially reducing health care costs while improving patient access to care and quality of life—the most important objective.

As noted above, these types of solutions are not one size fits all. Health status insurance would not work for patients born with genetically based diseases, and direct primary care might not help patients with advanced tumors.

But in some respects, that’s the point. Obamacare took a comparatively small universe of truly uninsurable patients—a few million, by some estimates—and uprooted the individual market of about 20 million people (to say nothing of other Americans’ health coverage) for it. Unfortunately, millions of Americans have ended up dropping insurance as a result, because the changes have priced them out of coverage.

A better way to reform the system would use a more specialized approach—a scalpel instead of a chainsaw. Health status insurance, improved portability, high-risk pools, and direct primary care represent four potential prongs of that better alternative.

This post was originally published at The Federalist.

House Health Care Bills Show Misplaced Priorities

Why would House Republican leadership place the concerns of gym owners over those of pro-lifers? And why would that same leadership embrace a policy suggestion from the liberal group Families USA that could entrench Obamacare while raising premiums for young people?

While the House will consider legislation this week providing tax breaks to individuals who buy gym memberships, the House has yet to consider legislation cutting off tax breaks for abortion this Congress. On the latter front, an expansion of “copper” catastrophic insurance plans would effectively eliminate a regulatory provision that has lowered premiums for young Americans—another misplaced priority that could cause consternation for some conservatives.

What’s Inside Some Health Savings Account Legislation

However, Section 8 of one of the bills would allow for a $500 deduction for gym memberships or instruction, and a $250 deduction for safety equipment, as a qualified medical expense. The amounts would double for joint returns.

While just about everyone supports increasing Americans’ levels of physical activity, the provision seems questionable at best. The tax reform bill enacted not eight months ago attempted to eliminate these kinds of deductions from the tax code, creating a simpler, fairer process. This proposal would turn right around and add more complexity, by requiring the IRS to issue new regulations “to determine…what does not constitute a qualified physical activity, including golf, hunting, sailing, horseback riding, and other similar activities.”

The federal government already tries to do too many things, and has too great a role in Americans’ lives as it is. Do we really need the IRS determining what is, and is not, a “qualified physical activity?”

As for Abortion and HSAs

In fact, some pro-life leaders have opposed provisions that would allow individuals to use HSA dollars to fund insurance premiums, because pro-lifers want to prohibit those funds from being used to pay for abortion coverage (or abortions period). But the House has yet to vote this Congress on limiting abortion as a qualified medical expense.

The pro-life legislation that the House voted on in January 2017, H.R. 7, sponsored by Rep. Chris Smith (R-NJ), prohibited taxpayer dollars from funding abortion in all cases, including Obamacare exchange plans. However, it did not address preferences in the tax code relating to abortion, such as the qualified medical expense deduction.

It seems that the House Ways and Means Committee, which marked up the bills in question, cares more about satisfying lobbyists than responding to their large pro-life constituency. From gym owners to device makers—who have lobbied intently for the Obamacare device tax repeal that the House will also consider this week—the series of health care bills contains myriad provisions, some good and some not-so-good, advocated by business lobbyists. Unfortunately, pro-life advocates have yet to receive similar consideration.

Unintended Consequences of Expanding ‘Copper’ Plans

However, because only certain individuals currently qualify for “copper” plans, insurers can adjust their premiums downward accordingly. Section 1312 of Obamacare contains a single risk pool requirement, meaning that insurers must rate all their products in a given state as a single book of business in determining premium rates. But a rule the Obama administration released in 2013 included a special exception to that provision for “copper” plans. These catastrophic plans may adjust their rates to reflect “the expected impact of the specific eligibility categories.”

In other words, because primarily young individuals enroll in catastrophic plans, insurers can at present lower their premiums to reflect that fact. However, by making everyone eligible for “copper” coverage, the House bill would effectively eliminate this adjustment, thus raising premiums for the 18- to 29-year-old individuals enrolled in the plans.

Effects of the ‘Copper’ Change

Catastrophic plans have not proven particularly popular on the exchange market, with only 1 percent of enrollees purchasing them as of earlier this year. However, that lack of popularity arises because individuals receiving premium subsidies (i.e., most of the people buying coverage directly from the exchange) cannot apply those subsidies to “copper” plans.

Paradoxical as it may sound, expanding these popular plans to all age groups could actually curb their appeal. While a recent eHealth analysis claims that an expansion of “copper” plans could save near-seniors (i.e., those aged 55-64) an average of $4,608 per year, it likely will not do so. eHealth’s analysis compares the current 41 percent differential between “copper” premiums and bronze premiums to arrive at its figure.

However, as noted above, the current “copper” rates assume enrollment primarily by individuals under 30. eHealth’s analysis thus compares rates for a market of individuals aged 18-29 to a market of individuals aged 18-64—which explains the 41-percentage point difference in premiums. But if “copper” plans expand to all ages, that premium differential will narrow—and premiums for the 18-29 population will likely increase.

Single Risk Pool Bolsters Obamacare

More to the point: The “copper” plan provision includes language reinforcing Obamacare’s single risk pool. It also undermines the intent of last year’s Consumer Freedom Amendment, offered in the Senate by Sen. Ted Cruz (R-TX), which would have allowed for the sale of non-compliant plans alongside Obamacare-compliant plans.

The difference on this one provision speaks to a broader philosophical debate. Moderates want to support Obamacare’s exchanges by passing “stability” legislation and expanding subsidies. So does Families USA, which in December 2012 submitted a comment to the Department of Health and Human Services opposing the rate adjustment provision for catastrophic plans, because it could tend to segment the market.

By contrast, conservatives want to offer people lifeboats away from the exchanges—options such as short-term insurance plans, association health plans, and the like. On that front, this week’s legislation does not advance the ball, and expanding “copper” plans could on balance represent a step back.

Thankfully, House leadership did not end up attaching attach an insurer bailout to this week’s HSA bills, after early rumblings in that direction. But the fact that conservatives even need to have these discussions speak to the ways in which many House Republicans want to strengthen Obamacare rather than repealing it.

This post was originally published at The Federalist.

Republicans Hide Obamacare Bailout Inside Health Savings Account Bill

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

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

This Is a Bad Deal for Conservatives

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

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

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

Questionable Policies

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

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

Non-HSA Legislation Bears Attention, Too

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

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

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

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

This Is Not a Good Deal

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

This post was originally published at The Federalist.

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.

Legislative Bulletin: Updated Summary of Obamacare “Stability” Legislation

On Monday, Sen. Lamar Alexander (R-TN) and others introduced their latest version of an Obamacare “stability” bill. In general, the bill would appropriate more than $60 billion in funds to insurance companies, propping up and entrenching Obamacare rather than repealing it.

Also on Monday, the Congressional Budget Office released its analysis of the updated legislation. In CBO’s estimate, the bill would increase the deficit by $19.1 billion, while marginally increasing the number of insured Americans (by fewer than 500,000 per year).


Stability Fund
: Provides $500 million in funding for fiscal year 2018, and $10 billion in funding for each of fiscal years 2019, 2020, and 2021, for invisible high-risk pools and reinsurance payments. The $500 million this year would provide administrative assistance to states to establish such programs, with the $10 billion in each of the following three years maintaining them.

Grants the secretary of Health and Human Services (HHS), in consultation with the National Association of Insurance Commissioners, the authority to allocate the funds to states—which some conservatives may be concerned gives federal bureaucrats authority to spend $30.5 billion wherever they choose.

Includes a provision requiring a federal fallback for 2019 (and only 2019) in states that choose not to establish their own reinsurance or invisible high-risk program. Moreover, these federal fallback dollars must be used “for market stabilization payments to issuers.” Some conservatives may be concerned that this provision—which, like the rest of the $30 billion in “stability funds,” did not appear in the original Alexander-Murray legislation—undermines state flexibility, by effectively forcing states to bail out insurers, whether they want to or not.

Cost-Sharing Reduction Payments: The bill appropriates roughly $30-35 billion in cost-sharing reduction (CSR) payments to insurers, which subsidizes their provision of discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance exchanges.

Last October, President Trump announced he would halt the payments to insurers, concluding the administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the final quarter of 2017, and $9-10 billion for each of years 2019, 2020, and 2021, based on CBO spending estimates. This language represents a change from the original Alexander-Murray bill, which appropriated payments for 2018 and 2019 only.

For 2018, the bill appropriates CSRs only for 1) states choosing the Basic Health plan option (which gives states a percentage of Obamacare subsidies as a block grant to cover low-income individuals) and 2) insurers for which HHS determines, in conjunction with state insurance commissioners, that the insurer assumed the payment of CSRs when setting rates for the 2018 plan year. This language represents a change from the original Alexander-Murray bill, which set up a complicated system of rebates that would have allowed insurers potentially to pocket billions of dollars by retaining “extra” CSR payments for 2018.

Some conservatives may be concerned that, because insurers understood for well over a year that a new administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future.

Hyde Amendment: With respect to the issue of taxpayer dollars subsidizing federal insurance plans covering abortion, the bill does not apply the Hyde Amendment protections retrospectively to the 2017 CSR payments, or to the (current) 2018 plan year. With respect to 2019 through 2021, the bill prohibits federal funding of abortions, except in the case of rape, incest, or to save the life of the mother. However, the bill does allow states to use state-only dollars to fund other abortions, as many state Medicaid managed care plans do currently.

According to the pro-abortion Guttmacher Institute, with respect to coverage of abortions in state Medicaid plans:

  • 32 states and the District of Columbia follow the federal Hyde Amendment standard, funding abortion only in the cases of rape, incest, or to save the life of the mother;
  • One state provides abortion only in the case of life endangerment; and
  • 17 states provide coverage for most abortions—five voluntarily, and 12 by court order.

State Waiver Processes: The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the bill would:

  • Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  • Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver”;
  • Require HHS to release guidance to states within 60 days of enactment regarding waivers, including model language for waivers—a change from the 30 days included in the original Alexander-Murray bill;
  • Shorten the time for HHS to consider waivers from 180 days to 120—a change from 90 days in the original Alexander-Murray bill;
  • Allow a 45-day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year”; 3) waivers that are “the same or substantially similar” to waivers previously approved for another state; and 4) waivers related to invisible high-risk pools or reinsurance, as discussed above. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  • Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance: On the substance of innovation waivers, the bill would rescind regulatory guidance the Obama administration issued in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/exchange waiver to offset higher costs to Medicaid, and vice versa.

While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump administration can revoke it at any time—indeed, should have revoked it last year. Additionally, the bill amends, but does not repeal, the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  • “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  • “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  • “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  • “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans: The bill would allow all individuals to purchase “catastrophic” health plans, beginning in 2019. The legislation would also require insurers to keep those plans in a single risk pool with other Obamacare plans—a change from current law.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding: The bill requires HHS to obligate $105.8 million in exchange user fees to states for “enrollment and outreach activities” for the 2019 and 2020 plan years—a change from the original legislation, which focused on the 2018 and 2019 plan years. Currently, the federal exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers.

In a rule released in December 2016, the outgoing Obama administration admitted that the exchange is “gaining economies of scale from functions with fixed costs,” in part because maintaining the exchange costs less per year than creating one did in 2013-14. However, the Obama administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of biweekly reports from HHS on metrics like call center volume, website visits, etc., during the 2019 and 2020 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing: Requires HHS to issue regulations (in consultation with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines.

However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Consumer Notification: Requires states that allow the sale of short-term, limited duration health coverage to disclose to consumers that such plans differ from “Obamacare-approved” qualified health plans. Note that this provision does not codify the administration’s proposed regulations regarding short-term health coverage; a future Democratic administration could (and likely will) easily re-write such regulations again to eliminate the sale of short-term plans, as the Obama administration did in 2016.

CBO Analysis of the Legislation

As noted above, CBO believes the legislation would increase the deficit by $19.1 billion, while increasing the number of insured Americans marginally. In general, while CBO believed that changes to Obamacare’s state waivers program would increase the number of states applying for waivers, they would not have a net budgetary impact.

However, the bill does include one particular change to Obamacare Section 1332 waivers allowing existing waiver recipients to request recalculation of their funding formula. According to CBO, only Minnesota qualifies under the statutory definition, and could receive $359 million in additional funding between 2018 and 2022. Some conservatives may be concerned that this provision represents a legislative earmark that by definition can only affect one state.

With respect to the invisible high-risk pools and reinsurance, CBO believes the provisions would raise spending by a net of $26.5 billion, offset by higher revenues of $7 billion. The budget office estimated that the entire country would be covered by the federal fallback option in 2019, because “it would be difficult for other states [that do not have waivers currently] to establish a state-based program in time to affect premiums.”

For 2020 and 2021, CBO believes that 60 and 80 percent of the country, respectively, would be covered by state waivers; “the remainder of the population in those years would be without a federally-funded reinsurance program or invisible high-risk pool.” The $7 billion in offsetting savings referenced in CBO’s score comes from lower premiums, and thus lower spending on federal premium subsidies. In 2019, CBO believes “about 60 percent of the federal cost for the default federal reinsurance program would be offset by other sources of savings.”

CBO believes that, under the bill, premiums would be 10 percent lower in 2019, and 20 percent lower in 2020 and 2021, compared to current law. Some conservatives may note that lower premiums relative to current law does not equate to lower premiums relative to 2018 levels. Particularly because CBO expects elimination of the individual mandate tax will raise premiums by 10 percent in 2019, many conservatives may doubt that premiums will go down in absolute terms, notwithstanding the sizable spending on insurer subsidies under the bill.

CBO noted that premium changes would largely affect unsubsidized individuals—i.e., families with incomes more than four times the federal poverty level ($100,400 for a family of four in 2018)—a small portion of whom would sign up for coverage as a result of the reductions. However, “in states that did not apply for a waiver, premiums would be the same under current law as under the legislation starting in 2020.”

Moreover, even in states with a reinsurance waiver, CBO believes that insurers will “tend to set premiums conservatively to hedge against uncertainty” regarding the reinsurance programs—meaning that CBO “expect[s] that total premiums would not be reduced by the entire amount of available federal funding.”

As noted in prior posts, CBO is required by law to assume full funding of entitlement spending, including cost-sharing reductions. Therefore, the official score of the bill included no net budget impact for the CSR appropriation. However, Alexander received a supplemental letter from CBO indicating that, compared to a scenario where the federal government did not make CSR payments, appropriating funds for CSRs would result in a notional deficit reduction of $29 billion.

The notional deficit reduction arises because, in the absence of CSR payments, insurers would “load” the cost of reducing cost-sharing on to health insurance premiums—thus raising premium subsidies for those who qualify for them. CBO believes these higher subsidies would entice more families with incomes between two and four times the federal poverty definition ($50,200-$100,400 for a family of four in 2018) to sign up for coverage. Compared to a “no-CSR” baseline, appropriating funds for CSRs, as the bill would do, would reduce spending on premium subsidies, but it would also increase the number of uninsured by 500,000-1,000,000, as some families receiving lower subsidies would drop coverage.

Lastly, the expanded sale of catastrophic plans, coupled with provisions including those plans in a single risk pool, would slightly improve the health of the overall population purchasing Obamacare coverage. While individuals cannot receive federal premium subsidies for catastrophic coverage, enticing more healthy individuals to sign up for coverage will improve the exchanges’ overall risk pool slightly, lowering federal spending on those who do qualify for exchange subsidies by $849 million.

This post was originally published at The Federalist.

Republicans’ SCHIP Surrender

In spring 2015, Senate Republican leaders pressured their members to accept a clean, two-year reauthorization of the State Children’s Health Insurance Program (SCHIP) added as part of a larger health spending measure.

The SCHIP reauthorization added to a larger Medicare bill included none of the reforms Republicans had proposed that year, many of which attempted to turn the program’s focus back toward covering low-income families first, as the George W. Bush administration had done. But Republican leaders said that the two-year extension, rather than the four-year extension Democrats supported, would allow conservatives to fight harder for reforms in 2017.

The press has focused on the disputes over paying for the SCHIP program, which have held up final enactment of a long-term reauthorization. (The House passed its version of the bill in November; the Senate, failing to find agreement on pay-fors, has not considered the bill on the floor.) But the focus on pay-fors has ignored Republicans’ abject surrender on the policy behind the program, because the media defines “bipartisanship” as conservatives agreeing to do liberal things. That occurred in abundance on this particular bill.

So Much for Our Promises, Voters

On the underlying policy, all the groups who pledged to fight for conservative reforms vacated the field. Senate Finance Committee Chairman Orrin Hatch (R-UT), who brags about how he created the program as part of the Balanced Budget Act in 1997, cut a deal with Ranking Member Ron Wyden (D-OR) that, as detailed below, includes virtually no conservative reforms to the program—raising questions about whether Hatch was so desperate for a deal to preserve his legacy that he failed to fight for conservative reforms.

House Speaker Paul Ryan (R-WI) did not repudiate the agreement Hatch and Wyden struck, even though that agreement maintained virtually the provisions of the 2009 SCHIP reauthorization that Ryan himself, then the ranking member of the House Budget Committee, called “an entitlement train wreck.”

Republicans have thus suffered the worst of both worlds: getting blamed for inaction on a program’s reauthorization, while already having conceded virtually every element of that program, save for its funding.

Details About the SCHIP Proposals

A detailed examination of the Hatch-Wyden agreement (original version here, and slightly revised version in Sections 301-304 of the House-passed bill here) demonstrates how it extends provisions of the 2009 reauthorization passed by a Democratic Congress and signed by President Obama—which Republicans in large part opposed. Moreover, the Hatch-Wyden agreement and House-passed bill includes none of the reforms the House Energy and Commerce Committee proposed, but were not enacted into law, in 2015.

The only “reform” in the pending reauthorization consists of phasing out an enhanced match for states included in Section 2101(a) of Obamacare—one already scheduled to expire. Even though the enhanced match will end on its own in October 2019, the Hatch-Wyden agreement and the House-passed bill would extend that enhanced match by one year further, albeit at a reduced level, before phasing it out entirely.

Child Enrollment Contingency Fund: Created in Section 103 of the 2009 reauthorization. As I noted then, “Some Members may be concerned that the fund—which does not include provisions making additional payments contingent on enrolling the low-income children­ for which the program was designed—will therefore help to subsidize wealthier children in states which have expanded their programs to higher-income populations, diverting SCHIP funds from the program’s original purpose” (emphasis original). Section 301(c) of the House-passed bill would extend this fund, without any reforms.

Express Lane Eligibility: Created in Section 203 of the 2009 reauthorization, as a way of using eligibility determinations from other agencies and programs to facilitate enrollment in SCHIP. As I noted then, “Some Members may be concerned first that the streamlined verification processes outlined above will facilitate individuals who would not otherwise qualify for Medicaid or SCHIP, due either to their income or citizenship, to obtain federally-paid health benefits.” Section 301(e) of the House-passed bill would extend this option, without any reforms.

Citizenship Verification: Section 211 of the 2009 reauthorization created a new process for verifying citizenship, but not identity, to circumvent strict verification requirements included in the 2005 Deficit Reduction Act. As I wrote in 2009:

Some Members may echo the concerns of Social Security Commissioner Michael Astrue, who in a September 2007 letter stated that the verification process proposed in the bill would not keep ineligible individuals from receiving federal benefits—since many applicants would instead submit another person’s name and Social Security number to qualify. Some Members may believe the bill, by laying out a policy of ‘enroll and chase,’ will permit ineligible individuals, including illegal aliens, to obtain federally-paid health coverage for at least four months during the course of the verification process. Finally, some Members may be concerned that the bill, by not taking remedial action against states for enrolling illegal aliens—which can be waived entirely at the Secretary’s discretion—until states’ error rate exceeds 3%, effectively allows states to provide benefits to illegal aliens.

Legal Aliens: Section 214 of the 2009 reauthorization allowed states to cover legal aliens in their SCHIP programs without subjecting them to the five-year waiting period required for means-tested benefits under the 1996 welfare reform law.

As I wrote in 2009, “Some Members may be concerned that permitting states to cover legal aliens without imposing waiting periods will override the language of bipartisan welfare reform legislation passed by a Republican Congress and signed by a Democrat President, conflict with decades-long practices in other federally-sponsored entitlement health programs (i.e., Medicare), and encourage migrants to travel to the United States for the sole or primary purpose of receiving health benefits paid for by federal taxpayers.” The House-passed bill includes no provisions modifying or repealing this option.

Premium Assistance: Section 301 of the 2009 reauthorization created new options regarding premium assistance—allowing states to subsidize employer-sponsored coverage, rather than enrolling individuals in government-run plans. While that reauthorization contained some language designed to make premium assistance programs more flexible for states, it also expressly prohibited states from subsidizing health savings account (HSA) coverage through premium assistance. The House-passed bill includes no provisions modifying or repealing this prohibition on states subsidizing HSA coverage.

Health Opportunity Accounts: Section 613 of the 2009 reauthorization prohibited the Department of Health and Human Services from approving any new demonstration programs regarding Health Opportunity Accounts, a new consumer-oriented option for low-income beneficiaries created in the 2005 Deficit Reduction Act. The House-passed bill includes no provisions modifying or repealing this prohibition on states offering more consumer-oriented options.

Covering Poor Kids First: The 2015 proposed reauthorization looked to restore SCHIP’s focus on covering low-income children first, by 1) eliminating the enhanced federal match rate for states choosing to cover children in families between 250-300 percent of the federal poverty level ($61,500-$73,800 for a family of four in 2017) and 2) eliminating the federal match entirely for states choosing to cover children in families above 300 percent of poverty. These provisions were consistent with the policy of the George W. Bush administration, which in 2007 issued guidance seeking to ensure that states covered low-income families first before expanding their SCHIP programs further up the income ladder. The House-passed bill includes no such provision.

Maintenance of Effort: Section 2001(b) of Obamacare included a requirement that states could not alter eligibility standards for children enrolled in SCHIP through October 1, 2019, limiting their ability to manage their state programs. Whereas the 2015 proposed reauthorization would have repealed this requirement, effective October 1, 2015, Section 301(f) of the House-passed bill would extend this requirement, through October 1, 2022. (However, under the House-passed bill, states could alter eligibility for children in families with incomes over 300 percent of poverty, beginning in October 2019.)

Crowd-Out: The 2015 proposed reauthorization allowed states to impose a waiting period of up to 12 months for individuals who declined an offer of, or disenrolled from, employer-based coverage—a provision designed to keep families from dropping private insurance to enroll in a government program. The House-passed bill contains no such provision.

Program Name: The 2009 reauthorization sought to remove the “state” element of the “State Children’s Health Insurance Program,” renaming the program as the “Children’s Health Insurance Program.” While the 2015 proposed reauthorization looked to restore the “state” element to “SCHIP,” the House-passed bill includes no such provision.

Cave, Not a Compromise

For all the focus on paying for SCHIP, the underlying policy represents a near-total cave by Republicans, who failed to obtain any meaningful reforms to the program. Granted, Democrats likely would not agree to all the changes detailed above. But the idea that a “bipartisan” bill should include exactly none of them also seems absurd—unless Republicans threw in the towel and failed to fight for any changes.

The press spent much of 2017 focused on Republican efforts to unwind Obamacare. But the SCHIP bill represents just as consequential a story. The cave on SCHIP demonstrates how many Republicans, after spending the last eight years objecting to the Obama agenda, suddenly have little interest in rolling it back.

This post was originally published at The Federalist.

There He Goes Again: Lamar Alexander Misrepresents His Obamacare Bailout

As Ronald Reagan might say, “There you go again.” Last week, Sen. Lamar Alexander (R-TN) published an op-ed in the Washington Examiner making claims about the Obamacare “stabilization” bill he developed with Sen. Patty Murray (D-WA).

The article tells a nice story about how conservatives should support the bill, but alas, one can consider it just that: A story. The article includes several material omissions and outright false statements about the legislation and its impact. Below are the facts and full context that Alexander wouldn’t dare admit about his bill.

Fact: In reality, the Congressional Budget Office in its score of the Alexander-Murray bill said the exact opposite:

Simply comparing outcomes with and without funding for CSRs [cost-sharing reduction payments], CBO and [the Joint Committee on Taxation] expect that federal costs in 2018 would be higher with funding for CSRs because premiums for 2018 have already been finalized and rebates related to CSRs would be less than the CSR payments themselves. [Emphasis mine.]

Insurers have already finalized their premiums for 2018 (in most states, open enrollment ends this Friday, December 15), and when doing so assumed cost-sharing reductions would not be paid. If Congress now turns around and appropriates those payments for 2018, insurers would have the possibility to “double-dip.” That means getting paid twice by the federal government to provide lower cost-sharing to low-income individuals.

While CBO believes insurers will return some of the “extra” subsidies they receive to the federal government—$3.1 billion worth, according to their estimate—they also believe that insurers will keep some portion of the excess, as much as $4-6 billion worth. That dynamic explains why CBO believes federal spending will increase, not decrease, as Alexander claims, if Congress appropriates cost-sharing reduction payments for 2018.

Fact: The $194 billion figure has no bearing to the Alexander-Murray legislation. Elsewhere in the op-ed, Alexander admits his bill would include “two years of temporary cost-sharing reduction payments.” If these payments would be “temporary,” then why cite a purported savings figure for an entire decade? Is Alexander trying to elide the fact that he wants to continue both Obamacare and these taxpayer payments to insurance companies in perpetuity?

Claim: “This bill includes new waiver authority for states to come up with their ideas to reduce premiums.”

Fact: The bill includes precious little new waiver authority for states. On substance, it retains virtually all of the “guardrails” in Obamacare that make implementing conservative ideas—like consumer-driven health-care options that use health savings accounts—impossible in a state waiver. While the bill does provide for a faster process for the federal government to consider waiver applications, without changing the substance of what provisions states can waive, the bill would just result in conservative states getting their waivers rejected more quickly.

Fact: This provision appears nowhere in the Alexander-Murray measure. Instead, it comprises a separate bill, introduced by senators Susan Collins (R-ME) and Bill Nelson (D-FL). And that bill, as originally introduced, would appropriate not $10 billion in reinsurance funds, but “only” $4.5 billion.

Some conservatives may find it bad enough that, in addition to appropriating roughly $20-25 billion straight to insurance companies in the Alexander-Murray bill, Alexander now wants a second source of taxpayer funds to subsidize insurers. Moreover, by more than doubling the amount of reinsurance funds compared to the original Collins-Nelson bill, Alexander seems to be engaging in a bidding war with himself to determine the greatest amount of taxpayers’ money he can shovel insurers’ way.

Claim: “Almost all House Republicans have already voted for its provisions earlier this year.”

At this point readers may question why Alexander made such a series of incomplete, misleading, and outright false claims in his op-ed. One other tidbit might explain the article’s dissociation with the truth.

Fact: Since 2013, the largest contributor to Alexander’s re-election campaign and leadership PAC has been…Blue Cross Blue Shield.

This post was originally published at The Federalist.

Legislative Bulletin: Summary of Alexander-Murray “Stability” Bill

On Tuesday afternoon, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) announced he had reached an agreement in principle with Ranking Member Patty Murray (D-WA) regarding an Obamacare “stabilization” package. Unfortunately, legislative text has not yet been released (UPDATE: bill text was released late Tuesday evening), but based on press reports, Twitter threads, and a summary circulating on Capitol Hill, here’s what is in the final package:

Cost-Sharing Reduction Payments:             The bill appropriates roughly $25-30 billion in cost-sharing reduction payments to insurers, which offset their costs for providing discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance Exchanges. Late last Thursday, President Trump announced he would halt the payments to insurers, concluding the Administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the rest of this calendar year, and $10-11 billion for each of years 2018 and 2019, based on Congressional Budget Office spending estimates.

For 2018 only, the bill includes language allowing states to decline the cost-sharing reduction payments—if they previously approved premium increases that assumed said payments would not be made. If states do not decline the payments, they must certify that said payments will “provide a direct financial benefit to consumers”—that is, they will result in lower premium rates, and/or rebates to consumers. The bill also includes clarifying language regarding the interactions between any such rebates and premium tax credit levels under Obamacare.

Some conservatives may be concerned that, because insurers understood for well over a year that a new Administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future. Moreover, some conservatives may be concerned that, absent Hyde Amendment protections, these payments would subsidize federal insurance plans covering abortion.

State Waiver Processes:     The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s Exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the agreement would:

  1. Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  2. Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver;”
  3. Require HHS to release guidance to states within 30 days of enactment regarding waivers, including model language for waivers;
  4. Shorten the time the Department of Health and Human Services to consider waivers from 180 days to 90;
  5. Allow a 45 day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year; and 3) waivers that are “the same or substantially similar” to waivers previously approved for another state. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  6. Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance:    On the substance of innovation waivers, the bill would regulatory guidance issued by the Obama Administration in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/Exchange waiver to offset higher costs to Medicaid, and vice versa. While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump Administration can revoke it at any time—indeed, should have revoked it months ago.

Additionally, the bill amends—but does not repeal—the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  1. “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  3. “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  4. “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their Exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans:              The bill would allow all individuals to purchase “catastrophic” health plans, and keep those plans in a single risk pool with other Obamacare plans. However, this provision would not apply until 2019—i.e., not for the upcoming plan year.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding:               The bill requires HHS to obligate $105.8 million in Exchange user fees to states for “enrollment and outreach activities” for the 2018 and 2019 plan years. Currently, the federal Exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers. In a rule released last December, the outgoing Obama Administration admitted that the Exchange is “gaining economies of scale from functions with fixed costs”—in part because maintaining the Exchange costs less per year than creating one did in 2013-14. However, the Obama Administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of bi-weekly reports from HHS on metrics like call center volume, website visits, etc., during the 2018 and 2019 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump Administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing:     Requires HHS to issue regulations (in consultations with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines. However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

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.