D.C.’s Latest Health “Reform:” Seizing People’s Property

Just when you think the move for government control of health care couldn’t get any worse, somehow it manages to. Last Wednesday, the District of Columbia City Council approved a requirement for all DC residents to purchase health insurance. The mandate would take effect in January, right when the federal mandate penalty drops to $0, as per last year’s tax law.

The D.C. mandate contains three elements that make it just as bad as, if not worse than, the federal mandate it is intended to replace.

A (Deliberately?) Opaque Process

A cynic might believe that the D.C. Council acted in such a low-key manner by design. The council did not approve the mandate as a stand-alone bill, but wrapped it into a 297-page Budget Support Act. That bill contains such unrelated provisions as an amendment regarding the Fort Dupont Ice Arena, technical corrections to a supermarket tax incentive program, and amendments regarding civic associations using public schools.

Likewise, a press release by the D.C. Council summarizing Wednesday’s meeting contained not a word about imposing the individual mandate, nor did the council website show any stand-alone votes on the mandate itself. This lack of disclosure pushed me to contact my council member, Charles Allen, to find out what had happened at the council meeting Wednesday.

Upon hearing that the mandate as passed of a much larger package, I asked one of Allen’s staffers whether this provision had been “snuck in at the last minute.” The staffer said DC Mayor Muriel Bowser had proposed the mandate as part of her budget submission to the council back in March. He then rather sheepishly added that, while people had testified on behalf of other portions of the Budget Support Act, no one had spoken about the mandate specifically.

For a district that decries “Taxation Without Representation,” this Nancy Pelosi-esque behavior—where we literally had to pass the bill to find out what was in it—seems to embody the very congressional tactics that DC leaders love to hate.

Harsher Penalties for Violators

During the 2009-10 debate on Obamacare, the threat of penalties for violating the individual mandate became a source of intense controversy. During the Senate Finance Committee’s markup, Sen. John Ensign (R-NV) received a handwritten note from Thomas Barthold, head of the Joint Committee on Taxation, stating that, under federal law, non-payment of the mandate tax could result in imprisonment. Democrats buckled under this political pressure, removing from the Internal Revenue Service the power to imprison violators, or impose liens on personal property, for non-payment of the mandate tax.

By contrast, the district’s mandate—which comprises pages 168-182 of the Budget Support Act—includes this language at the bottom of page 180: “A taxpayer who fails to pay the District of Columbia shared responsibility payment imposed…shall be subject to all collection, enforcement, and administrative provisions applicable to unpaid taxes or fees, as provided in Chapter 18, Chapter 41, Chapter 42, Chapter 43, and Chapter 44 of this title [emphasis mine].”

Unlike the federal Internal Revenue Code, it does not appear at first glance that the district’s tax law allows for imprisoning individuals for non-payment of taxes (as opposed to deliberate tax evasion or fraud). However, Chapter 44 includes the following language:

If a person determined to be liable to the District of Columbia for a tax neglects or refuses to pay the tax within 10 days after notice and demand, the Mayor may collect the tax, with interest and penalties thereon (and an amount sufficient to cover the expenses of the levy), by levy upon all property (including rights to property) of the person or on which there is a lien provided in this chapter for the payment of the tax.

No wonder the D.C. Council didn’t want to hold an up-or-down vote on just this provision.

Hypocrisy Much?

Another relevant fact to the district’s mandate: The head of the District’s health insurance exchange—which recommended creating a DC mandate following the removal of the federal tax penalty—doesn’t buy exchange coverage herself. As I previously noted, many exchange heads (and Obamacare supporters) refuse to buy the coverage they promote, including the head of the district’s exchange, Mila Kofman.

When I discovered in late 2016 that I could not retain that plan in 2017, due in part to regulations imposed by the district’s exchange, I attended a meeting of the exchange authority. I asked Kofman whether she, and other exchange employees, purchased exchange coverage. She claimed that she and her colleagues could not purchase exchange policies, because they would lose their employer subsidy in the process.

I don’t know whether Bowser and the DC Council behave similarly to Kofman, but I can guess. On Thursday afternoon, I e-mailed Bowser’s office asking about the DC insurance mandate, and whether Bowser received a taxpayer subsidy for her insurance coverage. (The district’s mayor receives a salary of $200,000 annually.) I also asked what Bowser would “say to District residents like me—who make far less in salary than she does, yet do not receive [taxpayer-]subsidized benefits—being forced to buy coverage under penalty not just of taxation, but of property seizures through DC’s tax enforcement mechanisms?”

Wouldn’t you know it: I have yet to receive a response.

Here Are Some Policy Solutions

Thankfully, several of the policy and process problems outlined above contain within them readily achievable solutions:

  • The D.C. Council should pass legislation requiring the mayor, council, exchange CEO, and exchange board members to buy coverage through the exchange—without using separate taxpayer-funded benefits available to other district employees.
  • If the council will not act, the Trump administration could promulgate regulations requiring the CEOs and board members of all state-run exchanges (including the district’s) to buy the coverage they promote and oversee.
  • Congress could also exercise its constitutional prerogatives and strike down the district’s individual mandate, ensuring that no individuals will have their property seized by an overzealous government if they cannot afford to buy “bureaucrat-approved” health insurance.

Better yet: The District of Columbia Council could decide to stop micromanaging its residents’ health care by surreptitiously passing onerous mandates in legislation that few district residents know about.

This post was originally published at The Federalist.

“SCOTUSCare” Redux? How Brett Kavanaugh Helped Uphold Obamacare

In a 2015 dissent to an Obamacare case, Supreme Court Justice Antonin Scalia famously opined that the court had concluded “that this limitation would prevent the rest of [Obamacare] from working as well as hoped. So it rewrites the law.… We should start calling this law SCOTUScare.”

Last week’s retirement announcement from Justice Anthony Kennedy, coupled with news placing Brett Kavanaugh, a judge on the U.S. Court of Appeals for the District of Columbia, high on President Trump’s list to replace Kennedy, has drawn attention back to the legal wrangling over the law. Some observers have claimed that Kavanaugh, in a 2011 opinion written when the D.C. Circuit considered Obamacare’s constitutionality, supported the law’s individual mandate.

Extended Discussion of the Anti-Injunction Act

Most of Kavanaugh’s opinion discusses interpretations of statute that hardly qualify as an enlightening discourse of constitutional principles. Whereas his two circuit court colleagues upheld the mandate as a valid exercise of Congress’ power under the Constitution’s Commerce Clause, Kavanaugh “dissent[ed] as to jurisdiction and [did] not decide the merits.”

Kavanaugh’s dissent arose from his belief that the 1867 Anti-Injunction Act precluded the court from deciding the merits of the individual mandate. The Anti-Injunction Act prevents individuals from challenging the validity of taxes in court until after they have paid them, which if applied to Obamacare’s mandate (which took effect in 2014) meant that a court challenge would not ripen until individuals had paid the mandate penalty on their taxes—i.e., in spring 2015, or nearly four years after the D.C. Circuit ruling.

Kavanaugh spends the better part of 50 pages—longer than the majority opinion justifying the mandate as constitutional—analyzing the Internal Revenue Code, and the Anti-Injunction Act, to support his belief that the mandate qualified as a tax under the act, forestalling any legal or constitutional challenge until after individuals had paid it. He cautions “the reader that some of the following is not for the faint of heart”—a true enough warning, as much of the opinion devolves into tedium that only a tax lawyer could love.

While Roberts disagreed with Kavanaugh’s reasoning about applying the Anti-Injunction Act to the Obamacare mandate, such differences over the interpretation of a 150-year-old statute hardly rise to the level of disqualifying for a potential Supreme Court nominee.

A Bit of Judicial Restraint…

Indeed, three-quarters of Kavanaugh’s ruling provides a worthy defense of judicial restraint—judges avoiding decisions on weighty questions wherever possible. He argues that courts should defer to Congress, which enacted the Anti-Injunction Act in the first place:

The jurisdictional status of the Anti-Injunction Act reflects the Constitution’s separation of powers in operation.  Under the Constitution, Congress possesses the power to tax and spend, as well as the power of the purse over appropriations of money. Congress zealously guards those prerogatives. Here, Congress has not afforded discretion to the Executive Branch to waive or forfeit the Anti-Injunction Act’s bar with respect to the assessment and collection of taxes. Rather, by making the Anti-Injunction Act jurisdictional, Congress has commanded courts to abide by the Act even when the Executive Branch might not assert it.

He also disregards efforts by the Obama administration, in attempts to provide policy certainty regarding Obamacare, encouraging the courts to decide the merits of the individual mandate before it took effect, rather than invoking the Anti-Injunction Act to bar the suits until 2015:

We must adhere to the statutory constraints on our jurisdiction no matter how much the parties might want us to jump the jurisdictional rails and decide this case now….By waiting, we would respect the bedrock principle of judicial restraint that courts avoid prematurely or unnecessarily deciding constitutional questions.

Followed by Judicial Activism

The last section of Kavanaugh’s opinion explains why he believes the courts should not decide the constitutionality of the individual mandate: “this case could disappear by 2015 because, by then, Congress may fix the alleged constitutional shortcoming and ensure that the Affordable Care Act’s individual mandate provision fits comfortably within Congress’ Taxing Clause power.”

In Kavanaugh’s view, the mandate could fit “comfortably” within Congress’ constitutional powers. Even as he “do[es] not take a position her on whether the statute as currently written is justifiable,” Kavanaugh concludes that “the only potential Taxing Clause shortcoming in the current individual mandate provision appears to be relatively slight” (emphasis in the original).

Several pages thereafter, Kavanaugh continues to answer a question nobody asked him, giving the legislature instructions on how to remedy the in-his-view minor constitutional infirmity:

This discussion about the potential problem with the Government’s Taxing Clause argument also shows how easily Congress could eliminate any such potential problem.  For example, Congress might keep the current statutory language and payment amounts and simply add a provision as basic as: “The taxpayer has a lawful choice either to maintain health insurance or make the payment to the IRS required by Section 5000A(a)-(c).” Or Congress might retain the exactions and payment amounts as they are but eliminate the legal mandate language in Section 5000A, instead providing something to the effect of: “An applicable individual without minimum essential coverage must make a payment to the IRS on his or her tax return in the amounts listed in Section 5000A(c).” Or Congress could adopt the approach from the House-passed bill, which expressly created a tax incentive and plainly satisfied the Taxing Clause.

Any of those options—and others as well—would ensure that this provision operates as a traditional regulatory tax and readily satisfies the Taxing Clause.

Kavanaugh’s Roadmap to Save Obamacare

Some will note the irony of Kavanaugh’s opinion stating that “no court to reach the merits has accepted the Government’s Taxing Clause argument.” Josh Blackman notes in his book “Unprecedented: The Constitutional Challenge to Obamacare” that Solicitor General Donald Verilli “advanced this very argument”—that severing the mandate to buy health insurance from the tax for not buying health insurance would make the latter constitutional—“at the Supreme Court.”

The gambit worked. Roberts ultimately relied upon that argument from Verilli by way of Kavanaugh to uphold the mandate as a constitutional exercise of the taxing power. That Kavanaugh, like Roberts, used the last few pages of his opinion to decry the “unprecedented” nature of a mandate upheld via the Commerce Clause power does not mitigate his favorable analysis of a mandate upheld via the Taxing Clause power.

Other analysts with more experience in constitutional and legal jurisprudence (and perhaps less experience in health policy) can opine on other parts of Kavanaugh’s record. But his opinion on Obamacare, while starting out with an admirable nod toward judicial restraint, unfortunately veered in an activist direction that gives this conservative serious pause.

This post was originally published at The Federalist.

Congress Needs to Eat Its Spinach

The tax bill’s effective repeal of Obamacare’s individual mandate briefly reprised the “broccoli mandate”—whether, as Justice Antonin Scalia asked during Supreme Court oral arguments on Obamacare in March 2012, the federal government could compel individuals to purchase certain foods.

But instead of broccoli, spinach might serve as a more apt analogy, for the way the tax bill came to repeal the mandate demonstrates the ways Congress refuses to eat its policy spinach, following the path of least resistance in making easy choices rather than tough ones.

Avoiding Tough Choices on Taxes

Cotton said the “looks of hesitance and outright terror on the faces of my colleagues” convinced him that Republicans had to repeal the mandate as part of the tax package. Translation: Republicans thought it easier to obtain revenue from repealing the mandate than to weed out the tax code of popular tax breaks—the point of tax reform, which Republicans initially sold as a way to simplify the Internal Revenue Code.

Remember how Speaker of the House Paul Ryan (R-WI) sold tax reform as a way to allow Americans to complete their taxes on a postcard? That type of reform didn’t happen, because enacting that reform would have involved eliminating many more popular deductions than the final tax bill ended.

Revenue Neutrality and Spending

Another key point in the tax debate surrounded the issue of revenue neutrality. The “Better Way” platform released by House Republicans last year not only “envision[ed] tax reform that is revenue neutral,” it included a very clear standard for that metric: “House Republicans measure revenue neutrality by reference to a ‘current policy baseline’—i.e., achieving a level of federal revenues that is approximately $400 billion less over the ten-year [budgetary] window than the current law baseline.”

Congress may have valid justifications for reducing revenues, such as to increase economic growth, or to shrink the size of government. But the fact remains that, when faced with enacting a supposed “parade of horribles” to achieve a revenue-neutral tax bill, Congress chose to change the nature of the bill rather than to make the tough choices needed to achieve its original benchmark.

Likewise on spending reductions arising from the tax bill. Because the tax measure increased the federal deficit, the Statutory Pay-as-You-Go (PAYGO) act would normally require commensurate spending cuts offsetting the revenue loss. However, rather than allow these reductions to go into effect—or replacing the proverbial hatchet of automatic cuts with more targeted spending reductions—both Republicans and Democrats voted to exempt the tax bill from the PAYGO law, ducking another difficult choice.

Repeal Only Unpopular Parts of Obamacare

Repealing only Obamacare’s individual mandate—one of the most loathed parts of the 2010 health care law—echoes a problem Republicans faced during the “repeal-and-replace” debate last year: Many want to retain popular elements of the law, while repealing its unpopular features. Witness Republicans’ statements of support for keeping the status quo on pre-existing condition exclusions.

By repealing the unpopular parts of Obamacare but retaining the popular parts, Congress may have created an incoherent, and potentially unstable, policy that results in premium increases, infusions of taxpayer cash to “stabilize” markets, or both. Senate Republican leaders have already proposed the latter, precisely because they fear the political effects if the former occur.

Therein lies the problem with the congressional strategy: Avoiding tough choices generally only postpones them for a time—not forever. If insurers decide to leave markets after the mandate’s repeal takes effect in 2019, Congress will have to fix a problem it helped create. Likewise attempts by today’s Congress to reduce taxes, and not reduce spending, in shifting the blame to future generations.

At some point those bills will come due, so Congress might want to consider actually making some tough choices now, rather than creating even tougher choices in years to come.

This post was originally published at The Federalist.

Are Cost-Sharing Reductions Subject to the Sequester?

Sen. Susan Collins (R-ME) thinks she has a deal with Senate Majority Leader Mitch McConnell (R-KY) to attach two provisions to a short-term spending bill later this month: The Alexander-Murray legislation to appropriate funds for cost-sharing reduction (CSR) payments to insurers, and a separate bill she and Sen. Bill Nelson (D-FL) have developed regarding reinsurance proposals.

Collins also thinks these two provisions will have a “net downward effect on premiums,” even after repealing Obamacare’s individual mandate as part of the tax bill the Senate is currently considering. However, it appears that Alexander-Murray and Collins-Nelson’s net effect on premiums could end up being a nice round number: Zero.

Cost-Sharing Reductions and the Sequester

The statute that created the budget sequester applies a list of programs and accounts not subject to sequestration spending reductions. For instance, the law exempts refundable tax credits, like those provided to low-income individuals who buy coverage on Obamacare’s exchanges, from sequestration reductions.

However, neither cost-sharing reduction payments nor reinsurance would qualify as refundable tax credits. They are paid directly to insurers, not individuals, and are not part of the Internal Revenue Code. Also, neither cost-sharing reductions nor reinsurance are on a list of other accounts and programs exempted from the sequester.

The Obama administration previously admitted that cost-sharing reduction payments were subject to the sequester, in a sequestration report to Congress in April 2013, and in testimony before the House Energy and Commerce Committee in August of that year. In a separate 2014 report, the Obama administration also admitted that Obamacare’s transitional reinsurance program (which expired in 2016, and which senators Collins and Nelson effectively want to re-create) was subject to the sequester.

However, last year Judge Rosemary Collyer ruled these actions unconstitutional, because the treasury lacks a valid appropriation to pay out CSR funds. The Trump administration last month stopped the CSR payments to insurers, citing the lack of an appropriation. While the Alexander-Murray bill would appropriate funds for the CSR payments, it would do so through the Centers for Medicare and Medicaid Services, not the treasury—meaning that the sequester would apply.

Statutory PAYGO and the Sequester

Earlier this month, the Congressional Budget Office (CBO) released a letter to Rep. Steny Hoyer (D-MD) indicating that legislation increasing the budget deficit (on a static basis, i.e., not accounting for economic growth) by $1.5 trillion would result in a sequester order of approximately $136 billion for 2018. The existing statutory formula would deliver a 4 percent, or approximately $25 billion, reduction in Medicare spending, followed by about $111 billion in reductions elsewhere.

However, because the sequestration statute exempts many major spending programs like Social Security and Medicaid, CBO believes that only about $85-90 billion in existing federal resources would be subject to the sequester. This means an additional $20-25 billion in mandatory spending, if appropriated, would immediately get sequestered to make up the difference.

On the one hand, conservatives who oppose paying CSRs to insurers may support an outcome where insurers do not actually receive these payments. On the other hand, however, some may view this outcome as the worst of all possible worlds: Having surrendered the principle that the federal government must prop up insurers—and Obamacare—without receiving any actual premium reductions, because the payments to insurers never get made.

This scenario, when coupled with repeal of the individual mandate, could result in a legislative outcome that raises premiums next year—a contradiction of the promises Republicans made to voters.

This post was originally published at The Federalist.

What You Need to Know about Cost-Sharing Reductions

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

On October 12, the Trump Administration announced it would immediately terminate a series of cost-sharing reduction payments to insurers. Meanwhile policy-makers have spent time debating and discussing cost-sharing payments in the context of a “stabilization” bill for the Obamacare Exchanges. Here’s what you need to know about the issue ahead of this year’s open enrollment period, scheduled to begin on November 1.

What are cost-sharing reductions?

Cost-sharing reductions, authorized by Section 1402 of Obamacare, provide individuals with reduced co-payments, deductibles, and out-of-pocket maximum expenses.[1] The reductions apply to households who purchase Exchange coverage and have family income of between 100% and 250% of the federal poverty level (FPL, $24,600 for a family of four in 2017). The system of cost-sharing reductions remains separate from the subsidies used to discount monthly insurance premiums, authorized by Section 1401 of Obamacare.[2]

What are cost-sharing reduction payments?

The payments (also referred to as CSRs) reimburse insurers for the cost of providing the discounted policies to low-income individuals. According to the January Congressional Budget Office (CBO) baseline, those payments will total $7 billion in the fiscal year that ended on September 30, $10 billion in the fiscal year ending this coming September 30, and $135 billion during fiscal years 2018-2027.[3]

What is the rationale for CSR payments?

Insurers argue that CSR payments reimburse them for discounts that the Obamacare statute requires them to provide to consumers. However, some conservatives would argue that the cost-sharing reduction regime might not be necessary but for the myriad new regulations imposed by Obamacare. These regulations have more than doubled insurance premiums from 2013 through 2017, squeezing middle-class families.[4] Some conservatives would therefore question providing government-funded subsidies to insurers partially to offset the cost of government-imposed mandates on insurers and individuals alike.

Why are the CSR payments in dispute?

While Section 1402 of Obamacare authorized reimbursement payments to insurers for their cost-sharing reduction costs, the text of the law did not include an explicit appropriation for them. Some conservatives have argued that the Obama Administration’s willingness to make the payments, despite the lack of an explicit appropriation, violated Congress’ constitutional “power of the purse.” In deciding to terminate the CSR payments, the Trump Administration agreed with this rationale.

What previously transpired in the court case over CSR payments?

In November 2014, the House of Representatives filed suit in federal court over the CSR payments, claiming the Obama Administration violated both existing law and the Constitution, and seeking an injunction blocking the Administration from making the payments unless and until Congress grants an explicit appropriation.[5] In September 2015, Judge Rosemary Collyer of the United States District Court for the District of Columbia ruled that the House of Representatives had standing to sue, rejecting a Justice Department attempt to have the case dismissed. Judge Collyer ruled that the House as an institution had the right to redress for a potential violation of its constitutional “power of the purse.”[6]

On May 12, 2016, Judge Collyer issued her ruling on the case’s merits, concluding that no valid appropriation for the CSR payments exists, and that the Obama Administration had violated the Constitution by making payments to insurers. She ordered the payments halted unless and until Congress passed a specific appropriation—but stayed that ruling pending an appeal.[7]

How did the Obama Administration justify making the CSR payments?

In its court filings in the lawsuit, the Obama Administration argued that the structure of Obamacare implied an appropriation for CSR payments through the Treasury appropriation for premium subsidy payments—an appropriation clearly made in the law and not in dispute.[8] President Obama’s Justice Department made this argument despite the fact that CSR and premium subsidy regimes occur in separate sections of the law (Sections 1402 and 1401 of Obamacare, respectively), amend different underlying statutes (the Public Health Service Act and the Internal Revenue Code), and fall within the jurisdiction of two separate Cabinet Departments (Health and Human Services and Treasury).

The Obama Administration also argued, in court and before Congress, that it could make an appropriation because Congress had not prohibited the Administration from doing so—effectively turning the Constitution on its head, by saying the executive can spend funds however it likes unless and until Congress prohibits it from doing so.[9] In her ruling, Judge Collyer rejected those and other arguments advanced by the Obama Justice Department.

Did Congress investigate the history, legality, and constitutionality of the Obama Administration’s CSR payments to insurers?

Yes. Last year, the Ways and Means and Energy and Commerce Committees organized and released a 158-page report on the CSR payments.[10] While congressional investigators received some documents relating to the Obama Administration’s defense of the CSR payments, the report described an overall pattern of secrecy surrounding critical details—portions of documents, attendees at meetings, etc.—of the CSR issue. For instance, the Obama Administration did not fully comply with valid subpoenae issued by the committees, and attempted to prohibit Treasury appointees who volunteered to testify before committee staff from doing so. However, despite the extensive oversight work put in by two congressional committees, and the pattern of secrecy observed, neither of the committees have taken action to compel compliance, or redress the Obama Administration’s obstruction of Congress’ legitimate oversight work.

What has the Trump Administration done about the CSR payment lawsuit?

After the election, the Justice Department and the House of Representatives filed a motion with the United States Circuit Court of Appeals for the District of Columbia.[11] The parties stated that they were in negotiations to settle the lawsuit, and sought to postpone proceedings in the appeal (which the Obama Administration had filed last year). The Justice Department and the House have filed several extensions of that request with the court, but have yet to present a settlement agreement, or provide any substantive updates surrounding the issues in dispute. In announcing its decision to terminate the CSR payments, the Trump Administration said it would provide the court with a further update on October 30.

In August, the Court of Appeals granted a motion by several Democratic state attorneys general seeking to intervene in the suit (originally called House v. Burwell, and renamed House v. Price when Dr. Tom Price became Secretary of Health and Human Services).[12] The attorneys general claimed that the President’s frequent threats to settle the case, and cut off CSR payments, meant their states’ interests would not be represented during the litigation, and sought to intervene to prevent the House and the Trump Administration from settling the case amongst themselves—which could leave an injunction permanently in place blocking future CSR payments.

Upon what basis did President Trump stop the CSR payments to insurers?

Under existing law, court precedent, and constitutional principles, a determination by the executive about whether or not to make the CSR payments (or any other payment) depends solely upon whether or not a valid appropriation exists:

  • If a valid appropriation does not exist, the executive cannot disburse funds. The Anti-Deficiency Act prescribes criminal penalties, including imprisonment, for any executive branch employee who spends funds not appropriated by Congress, consistent with Article I, Section 9, Clause 7 of the Constitution: “No money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.”[13]
  • If a valid appropriation exists, the executive cannot withhold funds. The Supreme Court held unanimously in Train v. City of New York that the executive cannot unilaterally impound (i.e., refuse to spend) funds appropriated by Congress, which would violate a President’s constitutional duty to “take Care that the Laws be faithfully executed.”[14]

Has a court forced President Trump to keep making the CSR payments?

No. In fact, until the Administration had announced its decision late Thursday, no one—from insurers to insurance commissioners to governors to Democratic attorneys general to liberal activists and Obamacare advocates—had filed suit seeking to force the Trump Administration to make the payments. (While the Democratic attorneys general sought, and received, permission to intervene in the House’s lawsuit, that case features the separate question of whether or not the House had standing to bring its matter to court in the first place. It is possible that appellate courts could, unlike Judge Collyer, dismiss the House’s case on standing grounds without proceeding to the merits of whether or not a valid appropriation exists.)

Given the crystal-clear nature of existing Supreme Court case law—if a valid appropriation exists, an Administration must make the payments—some would view the prolonged unwillingness by Obamacare supporters to enforce this case law in court as tacit evidence that a valid appropriation does not exist, and that the Obama Administration exceeded its constitutional authority in starting the flow of payments.

How will the decision to stop CSR payments affect individuals in Exchange plans?

In the short- to medium-term, it will not. Insurers must provide the cost-sharing reductions to individuals in qualified Exchange plans, regardless of whether or not they get reimbursed for them.

Can insurers drop out of the Exchanges immediately due to the lack of CSR payments?

No—at least not in most cases in 2017. The contract between the federal government and insurers on the federal Exchange for 2017 notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw from the Exchanges if they are not.[15] However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause may therefore have limited applicability to withdrawal of CSR payments. It appears insurers have little ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers.

If insurers faced a potential unfunded obligation—providing cost-sharing reductions without federal reimbursement—to the tune of billions of dollars, how did they react to Judge Collyer’s ruling last year?

Based on their public filings and statements, several did not appear to react at all. While Aetna and Centene referenced loss of CSR payments as impacting their firms’ outlooks and risk profiles in their first Securities and Exchange Commission (SEC) quarterly filings after Judge Collyer’s ruling, most other companies ignored the potential impact until earlier this year.[16] Some carriers have given decidedly mixed messages on the issue—for instance, as Anthem CEO Joseph Swedish claimed on his company’s April 26 earnings call that lack of CSR payments would cause Anthem to seek significant price hikes and/or drop out of state Exchanges,[17] his company’s quarterly SEC filing that same day indicated no change in material risks, and no reference to the potential disappearance of CSR payments.[18]

Even before Judge Collyer’s ruling in May 2016, one could have easily envisioned a scenario whereby a new President in January 2017 stopped defending the CSR lawsuit, and immediately halted the federal CSR payments: “Come January 2017, the policy landscape for insurers could look far different” than in mid-2016.[19] However, despite public warnings to said effect—and the apparent lack of public statements by either Donald Trump or Hillary Clinton to continue the CSR payments should they win the presidency—insurers apparently assumed maintenance of the status quo, disregarding these potential risks when bidding to offer Exchange coverage in 2017.

Did insurance regulators fail to anticipate or plan for changes to CSR payments following Judge Collyer’s ruling?

It appears that many did. For instance, the office of California’s state insurance commissioner reported having no documents—not even a single e-mail—analyzing the impact of Judge Collyer’s May 2016 ruling on insurers’ bids for the 2017 plan year.[20] Likewise, California’s health insurance Exchange disclosed only two relevant documents: A brief e-mail sent months after the state finalized plan rates for the 2017 year, and a more detailed legal analysis of the issues surrounding CSR payments—but one not undertaken until mid-November, after Donald Trump won the presidential election.[21]

Some conservatives may be concerned that insurance commissioners’ failure to examine the CSR payment issue in detail—when coupled with insurers’ similar actions—represents the same failed thinking that caused the financial crisis. That herd behavior—an insurer business model founded upon a new Administration continuing unconstitutional actions, and regulators blindly echoing insurers’ assumptions—represents the same “too big to fail” mentality that brought us a subprime mortgage scandal, a massive financial crash on Wall Street, a period of prolonged economic stagnation, and a taxpayer-funded bailout of big banks.

How can Congress restore its Article I power?

With respect to the CSR payments, conservatives looking to restore its Article I power—as Speaker Ryan recently claimed he wanted to do by maintaining the debt limit as the prerogative of Congress—could take several appropriate actions:[22]

  • Insist on a settlement of the lawsuit in the House’s favor, consistent with the last Congress’ belief that 1) Obamacare lacks a valid appropriation for CSR payments and 2) decisions regarding appropriations always rest with Congress, and not the executive;
  • Ask the Justice Department to investigate whether any Obama Administration officials violated the Anti-Deficiency Act by making CSR payments without a valid congressional appropriation; and
  • Insist on enforcement of the subpoenae issued by the House Ways and Means and Energy and Commerce Committees during the last Congress, and pursue contempt of Congress charges against any individuals who fail to comply.

How can Congress exercise its oversight power regarding the CSR payments?

Before even debating whether or not to create a valid appropriation for the CSR payments, Congress should first examine in great detail whether and why insurers and insurance commissioners ignored the issue in 2016 (and prior years); any potential changes to remedy an apparent lack of oversight by insurance commissioners; and appropriate accountability for any unconstitutional and illegal actions as outlined above.

Some conservatives may be concerned that, by blindly making a CSR appropriation without conducting this critically important oversight, Congress would make a clear statement that Obamacare is “too big to fail.” Such a scenario—in addition to creating a de facto single-payer health care system—would, by establishing a government backstop for insurers’ risky behaviors, bring about additional, and potentially even larger, bailouts in the future.

What are the implications of providing CSR payments to insurers?

Given the way in which many insurers and insurance regulators blindly assumed cost-sharing reduction payments would continue, despite the lack of an express appropriation in the law, some conservatives may be concerned that making CSR payments would exacerbate moral hazard. Specifically, when filing their rates for the 2017 plan year, insurers appear to have assumed they would receive over $7 billion in CSR payments—despite the uncertainty surrounding 1) the lack of a clear CSR appropriation in the statute; 2) the May 2016 court ruling calling the payments unconstitutional; 3) the unknown outcome of the 2016 presidential election; and 4) the apparent lack of a firm public commitment by either major candidate in the 2016 election to continue the CSR payments upon taking office in January 2017.

Some conservatives may therefore oppose rewarding this type of reckless behavior by granting them the explicit taxpayer subsidies they seek, for fear that it would only encourage additional irresponsible risk-taking by insurance companies—and raise the likelihood of an even larger taxpayer-funded bailout in the future.

How can Congress solve the larger issue of CSRs creating an unfunded mandate on insurance companies absent an explicit appropriation?

One possible way would involve elimination of Obamacare’s myriad insurance regulations, which have led to insurance premiums more than doubling in the individual market over the past four years.[23] Repealing these new and costly regulations would lower insurance premiums, reducing the need for cost-sharing reductions, and allowing Congress to consider whether to eliminate the CSR regime altogether.


[1] 42 U.S.C. 18071, as created by Section 1402 of the Patient Protection and Affordable Care Act, P.L. 111-148.
[2] 26 U.S.C. 36B, as created by Section 1401 of PPACA.
[3] Congressional Budget Office, January 2017 baseline for coverage provisions of the Patient Protection and Affordable Care Act, https://www.cbo.gov/sites/default/files/recurringdata/51298-2017-01-healthinsurance.pdf, Table 2.
[4] Department of Health and Human Services Office of Planning and Evaluation, “Individual Market Premium Changes: 2013-2017,” ASPE Data Point May 23, 2017, https://aspe.hhs.gov/system/files/pdf/256751/IndividualMarketPremiumChanges.pdf.
[5] The House’s original complaint, filed November 21, 2014, can be found at https://jonathanturley.files.wordpress.com/2014/11/house-v-burwell-d-d-c-complaint-filed.pdf.
[6] Judge Collyer’s ruling on motions to dismiss, dated September 9, 2015, can be found at https://docs.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2014cv01967/169149/41.
[8] Links to the filings at the District Court level can be found at https://dockets.justia.com/docket/district-of-columbia/dcdce/1:2014cv01967/169149.
[9] Testimony of Mark Mazur, Assistant Secretary for Tax Policy, before the House Ways and Means Oversight Subcommittee hearing on “Cost Sharing Reduction Investigation and the Executive Branch’s Constitutional Violations,” July 7, 2016, https://waysandmeans.house.gov/event/hearing-cost-sharing-reduction-investigation-executive-branchs-constitutional-violations/.
[10] House Energy and Commerce and House Ways and Means Committees, “Joint Congressional Investigative Report into the Source of Funding for the ACA’s Cost Sharing Reduction Program,” July 7, 2016, https://waysandmeans.house.gov/wp-content/uploads/2016/07/20160707Joint_Congressional_Investigative_Report-2.pdf
[13] The statutory prohibition on executive branch employees occurs at 31 U.S.C. 1341(a)(1); 31 U.S.C. 1350 provides that any employee knowingly and willfully violating such provision “shall be fined not more than $5,000, imprisoned for not more than two years, or both.”
[14] Train v. City of New York, 420 U.S. 35 (1975).
[15] Qualified Health Plan Agreement between issuers and the Centers for Medicare and Medicaid Services for 2017 plan year, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.
[16] Aetna Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyRndhUzUwWlc1cmQybDZZWEprTG1OdmJTOWtiM2R1Ykc5aFpDNXdhSEEvWVdOMGFXOXVQVkJFUmlacGNHRm5aVDB4TVRBMk5qa3hOQ1p6ZFdKemFXUTlOVGM9JnR5cGU9MiZmbj1BZXRuYUluYy5wZGY=
p. 44; Centene, Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, https://centene.gcs-web.com/static-files/23fd1935-32de-47a8-bc03-cbc2c4d59ea6, p. 42.
[17] Transcript of Anthem, Inc. quarterly earnings call for the first quarter of calendar year 2017, April 26, 2017, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjY3NTM5fENoaWxkSUQ9Mzc1Mzg1fFR5cGU9MQ==&t=1, p. 5.
[19] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies to Insurers?” Wall Street Journal May 5, 2016, https://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.
[20] Chris Jacobs, “Don’t Blame Trump When Obamacare Rates Jump,” Wall Street Journal June 16, 2017, https://www.wsj.com/articles/dont-blame-trump-when-obamacare-rates-jump-1497571813.
[21] Covered California response to Public Records Act request, August 25, 2017.
[22] Burgess Everett and Josh Dawsey, “Trump Suggested Scrapping Future Debt Ceiling Votes to Congressional Leaders,” Politico September 7, 2017, http://www.politico.com/story/2017/09/07/trump-end-debt-ceiling-votes-242429.
[23] HHS, “Individual Market Premium Changes: 2013-2017.”

Legislative Bulletin: Summary of “Repeal and Replace” Amendments

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

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

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

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

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

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

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

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

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

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

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

 

MARCH 24 UPDATE:

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

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

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

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

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

MARCH 23 UPDATE:

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

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

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

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

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

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

Summary of both amendments follows:

Policy Changes

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

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

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

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

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

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

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

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

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

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

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

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

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

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

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

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

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

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

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

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

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

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

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

Legislative Bulletin: Updates to House Republicans’ Managers’ Amendments

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

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

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

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

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

MARCH 23 UPDATE:

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

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

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

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

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

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

Summary of both amendments follows:

Policy Changes

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

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

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

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

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

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

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

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

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

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

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

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

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

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

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

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

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

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

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

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

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

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

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

Legislative Bulletin: Updated Summary of House Republicans’ Managers’ Amendments

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

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

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

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

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

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

Summary of both amendments follows:

Policy Changes

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

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

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

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

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

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

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

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

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

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

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

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

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

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

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

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

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

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

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

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

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

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

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

Legislative Bulletin: Summary of House Republican Managers’ Amendments

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

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

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

Summary of both amendments follows:

Policy Changes

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

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

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

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

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

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

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

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

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

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

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

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

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

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

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

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

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

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

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

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

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

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

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

Senate Republicans Propose Taxpayer Funding of Abortion

In the same week as the March for Life and the anniversary of the Roe v. Wade decision legalizing abortion nationwide, congressional Republicans are presenting strikingly different messages on the issue. While the House of Representatives on Tuesday approved legislation (H.R. 7) that would prohibit federal funding of abortions, with all House Republicans present voting for the bill, on Monday four Republican senators introduced a bill that would allow direct taxpayer funding of abortions.

That legislation, the Patient Freedom Act (the PFA, Senate Bill 191), introduced by senators Bill Cassidy (R-LA) and Susan Collins (R-ME), would go further than Obamacare in funding abortion coverage. Whereas Obamacare provides federal funding for insurance plans that cover abortion, the Patient Freedom Act would allow for direct federal funding of abortion procedures themselves.

  • Keep the regime created by Obamacare in place (i.e., the individual and employer mandates, subsidies, etc.), albeit funded at 95 percent of current levels;
  • Create a new insurance regime, funded by a rather complicated allotment formula—the allotment would equal 95 percent of the funding a state would have received under Obamacare, distributed directly to individuals through new Roth Health Savings Accounts (HSAs); or
  • Reject Obamacare entirely—and give up all federal funds associated with it.

The text of the legislation indicates a clear bias towards option two. If a state does not choose any of the three options, that state will automatically be placed in the second.

This Bill Would Repeal Abortion Restrictions

If a state chooses the second option, most of the provisions of Title I of Obamacare would not apply. That repeal would include the individual and employer mandates, and some (but not all) of the federal benefit mandates included in Obamacare.

Crucially, for states that select the second option (or the third, for that matter), the PFA would repeal Section 1303 of Obamacare, which imposes some restrictions on federal funding of abortion plans. Section 1303 permits states to prohibit abortion coverage on their insurance exchanges, and requires insurers to set up a segregation mechanism intended to keep federal insurance subsidies separate from funds that pay for abortion procedures.

However, Obamacare made an attempt, albeit a largely meaningless one, to prevent taxpayer funding of abortion. By contrast, the PFA makes no such attempt to do so.

Follow the Money

Because the PFA itself includes no restrictions on taxpayer funding of abortion, it’s critical to examine the source of funding for the new state-based allotments. While the Hyde Amendment prohibits federal funding of abortion, it does so only for appropriations provided through the U.S. Department of Health and Human Services’ spending bill. Other agencies covered through other spending bills must explicitly prohibit funding of abortion coverage, otherwise federal funding of abortion would be permitted—and potentially required by courts as a necessary medical service.

The Patient Freedom Act includes only one new appropriation, for a population health initiative created by Section 103(c) of the bill. Therefore, the bill relies on Obamacare’s existing funding stream—the insurance subsidies provided in the form of refundable tax credits—to finance the allotments to individuals’ Roth HSAs. Because that funding stream goes through the Department of the Treasury via the Internal Revenue Code, the Hyde Amendment restrictions do not apply—meaning that federal funds can, and will, finance abortion coverage.

Direct Funding of Abortion Procedures

Not only would the Patient Freedom Act provide federal funds to insurance plans that cover abortion, it would allow individuals to fund their abortions directly with federal funds. The federal allotments would be directly provided (using a state-based formula developed by the Department of Health and Human Services) to eligible individuals using the new Roth Health Savings Account option. Recipients can use Roth HSA funds to fund health insurance premiums, provided those premiums are for plans that meet several federal mandates, or they can use their account to fund “qualified medical expenses.”

The definition of “qualified medical expenses”—available at Section 213(d) of the Internal Revenue Code here—includes no prohibition on abortion as a medical expense. Because the Internal Revenue Code is not subject to the Hyde Amendment, that law’s restrictions would not apply. Therefore, individuals could use federal dollars deposited into their Roth HSA to fund abortion procedures.

Current law does permit some tax breaks for abortion coverage. The tax code exempts employer-provided health insurance premiums from income and payroll taxes. Because some employer plans cover abortion, individuals receive a tax benefit for abortion coverage. Likewise, individuals can currently use their HSA funds to pay for abortions, given the definition of “qualified medical expenses.”

That is a significant expansion of federal abortion funding that exceeds anything in Obamacare. And it’s a strikingly odd message for the senators to send on a week when many conservatives are focusing on protecting innocent life, not using taxpayer funds to destroy it.

This post was originally published at The Federalist.