June 26, 2017

Senate Amendment to H.R. 1628: Better Care Reconciliation Act


Background: Senator McConnell released a discussion draft of the Senate amendment to H.R. 1628, the Better Care Reconciliation Act of 2017, on June 22 and an updated draft on June 26. This summary incorporates the changes made in the June 26 draft.

Floor Situation: Senator McConnell is expected to bring up the motion to proceed on Wednesday.

Notable Bill Provisions

Section 101 – Elimination of Limitation on Recapture of Excess Advance Payments of Premium Tax Credits

The bill repeals the dollar amount limits placed on subsidy repayment for people who received an excess advance premium tax credit, beginning in tax year 2018. Under Obamacare, if someone received too much, there are limits on what the government can collect.

Section 102 – Restrictions for the Premium Tax Credit

Beginning in 2020, the bill makes significant changes to the eligibility criteria for the premium tax credit. Under Obamacare, people with incomes between 100 percent and 400 percent of the federal poverty level are eligible for the credit. Under this bill, those with incomes from zero percent to 350 percent of FPL are eligible for the credit. The credit will begin to phase out at 300 percent of FPL.

The bill also adjusts how the premium tax credit is calculated (see chart below). It changes the income percentage that a recipient is required to pay before the credit kicks in and adjusts the required income percentage by age. This change would protect low-income people from having to pay a higher percentage of their income on premiums. In addition, the credit amount becomes more generous for younger adults and requires older adults at higher incomes to pay a greater share of their income on premiums before the credit kicks in to offset the cost of coverage

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The credit amount is pegged to the plan with the median premium – or the next lowest premium – with an actuarial value of 58 percent in a geographic region, similar to a bronze or catastrophic plan. Previously, the credit amount was linked to the second-lowest cost plan with an actuarial value of 70 percent, a silver plan, in a region.

The aggregate growth of the premium tax credits will be slowed if the cost to the federal government reaches 0.4 percent of gross domestic product, compared to a higher threshold under current law, which is 0.504 percent of GDP. 

The credit is only available to purchase coverage on the exchanges. It is only offered to people with qualifying incomes who are ineligible for coverage under a government program and not offered employer-sponsored insurance. The bill removes the affordability requirement for employer-sponsored insurance. To receive the credit, a person must be a citizen, national, or “qualified alien” and cannot be incarcerated.

The credits would also be “advanceable” – meaning they can go directly from the government to an insurer each month. The recipient would not have to wait until he files his taxes to receive advance payments of the credit. They would also be “refundable,” meaning he could collect the full credit even if he does not owe any income taxes.

Beginning in 2018, the bill modifies the definition of a “qualified health plan” to exclude plans that cover abortions other than to save the life of the mother or in the case of a pregnancy that is the result of rape or incest.

Section 103 – Modifications to Small Business Tax Credit

Excludes any health plan that covers elective abortion from being eligible for the small business tax credit and repeals the small business tax credit beginning in 2020.

Section 104 – Individual Mandate

Effectively repeals the individual mandate by lowering the penalty to $0 beginning in taxable year 2016.

Section 105 – Employer Mandate

Effectively repeals the employer mandate by lowering the penalty to $0 beginning in taxable year 2016.

Section 106 – State Stability and Innovation Fund

The bill creates two funds, for a total of $112 billion in federal dollars, to promote market stability and encourage state innovation over both the short-term and the long-term.

Short-term assistance to address coverage and access disruption and provide support for states:

The short-term fund allocates a total of $50 billion – $15 billion a year for calendar years 2018 and 2019 and $10 billion a year for 2020 and 2021.

The administrator of the Centers for Medicare and Medicaid Services would have wide latitude to use the money to fund arrangements with health insurance companies to address coverage and access disruption and respond to urgent health care needs. The funds appropriated will remain available until expended.

Not later than 30 days after enactment of this bill, the administrator will issue guidance to health insurance issuers regarding how to submit a notice of intent to participate in the program. Issuers will have to submit a notice of intent to participate for 2018 within 35 days of enactment. For 2019, 2020, and 2021, issuers will have to submit a notice to participate by March 31 of the previous year.

The administrator will determine how to distribute funds. Insurance issuers are not required to provide a funding match.

The funds may not be provided to any insurance plan that provides coverage of elective abortions.

Long-term state stability and innovation program:

The long-term fund provides a total of $62 billion from 2019 to 2026 (see chart below).

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The bill outlines four allowable uses for the funds:

  1. To establish or maintain a program or mechanism to provide financial assistance – including by reducing premium costs – to help high-risk people who have or are projected to have a high rate of utilization of health services, as measured by cost;

  2. To establish or maintain a program to enter into arrangements with health insurance issuers to help stabilize premiums and promote state health insurance market participation and choice in plans offered in the individual market;

  3. To provide payments for health care providers for the provision of health care services;

  4. To provide assistance to reduce out-of-pocket costs, such as copayments, coinsurance, and deductibles, of people enrolled in plans offered in the individual market.

Of these funds, the administrator shall ensure that at least $5 billion a year in years 2019, 2020, and 2021 is used for purpose two explained above.

The funds are prohibited from going to the health insurance coverage of abortion services.

A state must submit an application for funds not later than March 31 for funds the following year. Funds are available for two years.

States apply for the funds and are approved for all subsequent years through 2026 unless the CMS administrator finds the state to be out of compliance.

In 2022, states would be required to start making contributions to the fund, beginning with a 7 percent match and increasing 7 percent each year until reaching a 35 percent match rate in 2026.

Section 107 – Better Care Reconciliation Implementation Fund

The Department of Health and Human Services is provided $500 million to implement the bill.

Section 108 – Repeal the Tax on Employee Health Insurance Premiums and Health Plan Benefits

Obamacare’s 40 percent excise tax on high-cost employer health plans, commonly referred to as the Cadillac tax, is delayed until 2026.

Section 109 – Repeal of Tax on Over-the-Counter Medications

Repeals the exclusion of over-the-counter medicines from the allowable uses of tax-advantaged health accounts, effective beginning in taxable year 2017.

Section 110 – Repeal of Tax on Health Savings Accounts

Repeals the tax increase for purchasing nonqualified medical expenses with tax-advantaged health accounts, effective for distributions made beginning in 2017. Obamacare raised the penalty from 10 percent to 20 percent for HSAs, this lowers it back down to 10 percent.

Section 111 – Repeal of Limitations on Contributions to Flexible Spending Accounts

Repeals the $2,500 limit on contributions to flexible spending accounts, effective beginning in plan year 2018.

Section 112 – Repeal of Tax on Prescription Medications

Repeals the tax on prescription drugs, effective calendar year 2018.

Section 113 – Repeal of Medical Device Excise Tax

Repeals the 2.3 percent excise tax on medical devices, effective for sales beginning in calendar year 2017.

Section 114 – Repeal of Health Insurance Tax

Repeals the health insurer tax, effective calendar year 2017.

Section 115 – Repeal of Elimination of Deduction for Expenses Allocable to Medicare Part D Subsidy

Repeals the elimination of the employer deduction for retiree prescription drug coverage, effective beginning in taxable year 2017.

Section 116 – Repeal of Chronic Care Tax

Repeals the increase in the amount of income that must be spent on medical expenses before a deduction is allowed, lowering it from Obamacare’s 10 percent to 7.5 percent, effective beginning in taxable year 2017.

Section 117 – Repeal of Medicare Tax Increase

Repeals the 0.9 percent increase in Medicare payroll tax for higher-income earners, effective beginning in taxable year 2023.

Section 118 – Repeal of Tanning Tax

Repeals the 10 percent indoor tanning tax, effective September 30, 2017.

Section 119 – Repeal of Net Investment Tax

Repeals the 3.8 percent net investment tax, effective beginning taxable year 2017.

Section 120 – Remuneration

Repeals the limit on deductibility of compensation for some employees of health insurers, effective beginning in taxable year 2017.

Section 121 – Maximum Contribution Limit to Health Savings Account Increased to Amount of Deductible and Out-of-Pocket Limitation

The maximum contribution for health savings accounts is nearly doubled. It is increased to the sum of the annual deductible plus the maximum out-of-pocket expenses permitted under a high deductible health plan. Effective beginning in taxable year 2018.

Section 122 – Allow Both Spouses to Make Catch-Up Contributions to the Same Health Savings Account

Both spouses can make catch-up contributions to the same health savings account, beginning in taxable year 2018.

Section 123 – Special Rule for Certain Medical Expenses Incurred Before Establishment of Health Savings Account

HSA funds may be used to pay for qualified medical expenses incurred during the 60 day period after enrollment in a high deductible health plan and before the account is established, beginning for coverage that begins in 2018.

Section 124 – Federal Payments to States

Prohibits for one year federal payments – including Medicaid, the Children’s Health Insurance Program, Maternal and Child Health Services Block Grants, and Social Services Block Grants to states – from going to certain non-profit, family planning entities that receive more than $350 million a year in Medicaid funding and provide abortion services.

Section 125 – Repeal of Medicaid Provisions

The bill prohibits hospitals that participate in Medicaid from making presumptive-eligibility determinations, intended to give people access to benefits before their application is approved, effective January 1, 2020.

It repeals the requirement to cover “stairstep children” up to 133 percent of FPL, effective January 1, 2020. After that date, states would still be required to cover children in this group with household incomes of up to 100 percent of FPL.

It repeals the increased federal match rate for the Community First Choice option, effective January 1, 2020.

Repeals the essential health benefits requirement for Medicaid beneficiaries.

Section 126 – Repeal of Medicaid Expansion

The bill repeals the state option to extend coverage to non-elderly adults above 133 percent of FPL after December 31, 2017.

Beginning in 2021, the Obamacare enhanced payment rate for all expansion-population enrollees will begin to decline 5 percentage points a year until 2024. In 2024, a state will receive its normal federal matching payment for the expansion population.

All states will be allowed to cover people earning less than 133 percent of the federal poverty level, but will have their payment decline over time until 2024, when the payment will be the state’s normal FMAP.

States that did not expand Medicaid prior to March 1, 2017, are ineligible to receive the Obamacare enhanced matching rate.

Section 127 – Restoring Fairness in DSH Allotments

Obamacare reduced disproportionate share hospital payments – intended to cover uncompensated care – to all states. Beginning in 2018, Obamacare’s cuts to Medicaid DSH payments will be reinstated for states that did not expand Medicaid. States that did expand Medicaid will have their DSH payments fully restored in 2020.

In addition, non-expansion states that have a per-capita DSH payment that is below the national average per capita DSH allotment will have their payment amount raised to the national average beginning in 2020 and ending when the expansion phase-down ends.

Section 128 – Reducing State Medicaid Costs

Limits retroactive enrollment in Medicaid to the month in which the applicant applied, beginning October 1, 2017.

Section 129 – Safety-Net Funding for Non-expansion States

Provides $10 billion over fiscal years 2018-2022 to non-expansion states to increase payments to Medicaid providers. Each state’s allotment of the $2 billion per year will be based on the number of residents below 138 percent of the poverty line in 2015, relative to the total number of people below this amount in all other non-expansion states. If a state expands Medicaid, it is no longer eligible for this safety-net funding the following years.

Section 130 – Eligibility Redeterminations

Allows states to increase the frequency of Medicaid eligibility redeterminations to every six months and increases administrative funding for states that opt for more frequent redeterminations.

Section 131 – Optional Work Requirement for Non-disabled, Non-elderly, Non-pregnant Individuals

Beginning October 1, 2017, states may elect to impose work requirements on their able-bodied, non-elderly, adult populations. The law provides enhanced administrative funding for states that take this option.

Section 132 – Provider Taxes

Phases down the allowable Medicaid provider tax threshold from 6 percent to 5 percent. The phase down is a 0.2 percent reduction each year from fiscal year 2021 to fiscal year 2025.

Section 133 – Per-Capita Allotment for Medical Assistance

Starting in fiscal year 2020, states will receive a capped amount of money per Medicaid enrollee, based on the category of eligibility into which the enrollee falls. There are five Medicaid categories: elderly; blind and disabled; children; non-expansion adults; and expansion adults. The initial payment amount will be based on a state’s per capita base period calculation. For this calculation, a state may pick any eight consecutive quarters from quarter one of fiscal year 2014 to quarter three of fiscal year 2017. The sum of applicable expenditures of those eight quarters is divided by two to create an artificial four fiscal quarter period to use as the per capita base period.

Funding for the elderly and the blind and disabled will be indexed to annual increases in the medical care component of the urban consumer price index – CPI-U – inflation rate plus 1 percent from 2020-2025. Funding for all other categories will be indexed to increases in the medical care component of the urban CPI from 2020-2025. For fiscal years 2025 and 2026, all populations’ cap amount will be indexed to increases in the CPI-U.

Non-DSH supplemental payments will be included in the caps. Certain populations, such as children with medically complex medical conditions and partial-benefit enrollees, would be exempt from the caps.

Beginning in 2020, a state’s target per capita medical assistance spending for each enrollee category will be adjusted if the state’s spending in that category in the previous year departed from the national average by 25 percent or more. If a state’s spending was less than 25 percent below the national average, the secretary of health and human services could increase the payment. If it was greater than 25 percent of the national average, the secretary could decrease the payment. These adjustments would not apply to low-density states.

Section 134 – Flexible Block Grant Option for States

Beginning in fiscal year 2020, states may choose to receive a block grant for providing health care for their non-elderly, non-disabled adult population rather than the per capita allotment.

Funding for the block grant would be determined using the same base year calculation as the state’s per capita allotment. The grant amount will be indexed to the CPI-U inflation rate. Unspent funds may be rolled over for the subsequent year.

The block grant lasts for five years, with the option to continue every five years after notification to CMS.

States that elect to use the block grant option have the ability to determine scope, duration, and amount of all mandatory benefits. At a state’s discretion, optional benefits can also be included.

Section 135 – Medicaid and CHIP Quality Performance Bonus Payments

There will be $8 billion available beginning in fiscal year 2023 through fiscal year 2026, for a state that spends below the per capita allotment and submits the required paperwork to HHS. Because states may not keep what they save if they spend below the cap, this fund provides some money to reward the most efficient states.

Section 136 – Grandfathering Certain Medicaid Waivers

States that are operating “managed care waivers” that have not substantially changed for 10 years or more may continue their waiver in perpetuity without needing re-approval. If a state does seek to modify an existing waiver, it is deemed approved unless the secretary responds within 90 days.

Section 138 – Optional Assistance for Certain Inpatient Psychiatric Services

States have the option to lift the Medicaid exclusion for institutions for mental disease from facilities based on beds in a facility, and instead can cover inpatient psychiatric services for substance use disorders and mental health for up to 30 consecutive days, but no more than 90 days per year.

States that utilize this option will be required to maintain: 1) the number of licensed beds; 2) the annual level of state spending for a: inpatient services and b: active psychiatric care and treatment. States would receive a 50 percent FMAP for Medicaid enrollees over age 21 and under 65. Effective October 1, 2018.

Section 139 – Small Business Health Plans

Establishes a new type of health plan, Small Business Health Plans, to be treated as group health plans. The bill establishes standards regarding who is eligible participate in the new health plans.

Section 201 – The Prevention and Public Health Fund

Rescinds all funds for the Prevention and Public Health Fund beginning in fiscal year 2018.

Section 202 – Support for State Response to Opioid and Substance Abuse Crisis

Appropriates $2 billion in fiscal year 2018 for HHS to provide grants to states to support treatment and recovery services for people with mental and substance use disorders, which many states may use to address the opioid crisis. The funds remain available until expended.

Section 203 – Community Health Center Program

Increases funding for community health centers by $422 million in fiscal year 2017.

Section 204 – Change in Permissible Age Variation in Health Insurance Premium Rates

Changes Obamacare’s age-rating restriction from 3:1 to 5:1, or a ratio determined by states. This means an older person would not be charged a premium more than 5 times higher than a younger person.

Section 205 – Medical Loss Ratio Determined by State

Changes Obamacare’s medical loss ratio for individual, small group, and large group health plans to a ratio determined by states.

Section 206 – Stabilizing the Individual Insurance Markets

Starting in 2019, consumers who have a 63 day gap in continuous coverage in the prior year will be subject to a six-month waiting period before coverage begins. Consumers will not have to pay premiums during this six-month period.  

Section 207 – Waivers for State Innovation

The bill makes substantial changes to Obamacare’s Section 1332 waiver, which allows states to receive funding to create their own health insurance reforms. These changes would make it both faster and easier to obtain a funding and a waiver, giving states the potential for significant flexibility.

Under current law, a state may waive the following:

  1. Definition of qualified health plan, including requirements related to essential health benefits, actuarial value, and limits on cost-sharing

  2. Establishment of health insurance exchanges

  3. Cost-sharing subsidies

  4. Premium tax credits

  5. Individual and employer mandates

However, a state may only obtain a waiver if the secretary determines that the state’s plan meets the following requirements:

  1. Provides coverage at least as comprehensive as under Obamacare, which is to be certified by the office of the CMS actuary;

  2. Provides coverage and cost-sharing at least as affordable as under Obamacare;

  3. Provides coverage to at least as many people as under Obamacare; and

  4. Will not increase the federal deficit

The bill amends the existing waiver to strike these requirements, which have been a barrier to states receiving funding. The Senate language would require 1332 waiver applications to include a description of how the state plan will replace the requirements being waived and provide alternative means for increasing coverage and lowering premiums. The secretary shall approve a state’s request unless the plan would increase the federal deficit.

In addition, the bill allows the new stability funding to be used as pass-through funding through the waiver.

The bill provides $2 billion in grants to assist states in the application of Section 1332 waivers.

Section 208 – Funding for Cost-Sharing Payments and Section 209 – Repeal of Cost-Sharing Subsidy Program

People between 100 percent and 250 percent of the federal poverty level get cost-sharing reduction subsidies to reduce their out-of-pocket expenses. These are in addition to any premium tax credit they receive. A person must be enrolled in a silver plan to receive CSR payments. This bill provides an appropriation for CSRs for this year through 2019. Beginning in 2020, CSRs are repealed. 

Administration Position

The administration has not taken a position on this bill at this time. 


The Congressional Budget Office is expected to release a cost estimate later today.