The American Health Care Act of 2017
- The House bill repeals Obamacare’s tax increases, subsidies, penalties, and mandates.
- It allows states to waive some of Obamacare’s most onerous insurance regulations. The waiver restores state control over certain aspects of their health insurance market.
- The bill will stabilize the individual and small group insurance markets by creating a new federal grant program that provides $100 billion states can use to stabilize their markets.
Keeping OUR PROMISE
The House’s American Health Care Act is the first step toward fulfilling many of the health care promises Republicans have made to the American people. The bill, constrained by rules in the Senate, will repeal Obamacare’s tax increases, subsidies, and Medicaid expansion. It also includes a new tax credit to help people purchase health coverage on their own, structural Medicaid reforms, and the Patient and State Stability Fund to stabilize the individual insurance market.
Compared to the version of the bill that was debated in the House in March, amendments have been added to create a risk-sharing program and allow states to waive certain Obamacare insurance regulations that have increased the cost of health coverage.
The American Health Care Act
REPEAL OF OBAMACARE’S TAXES
The bill eliminates or postpones 15 different Obamacare taxes.
Beginning in tax year 2016:
- Individual mandate penalty is $0
- Employer mandate penalty is $0
Beginning in 2017:
- Repeal of the tax on prescription drugs
- Repeal of the 10 percent indoor tanning tax, effective June 30
- Repeal of the health insurer tax
- Repeal of the 3.8 percent net investment tax
- Repeal of the limit on deductibility of compensation for some employees of health insurers
- Repeal of the exclusion of over-the-counter medicines from the allowable uses of tax-advantaged health accounts
- Repeal of the increase in the tax applied to purchases of disallowed products with tax-advantaged health accounts
- Repeal of the limit placed on contributions to flexible spending accounts
- Repeal of the 2.3 percent excise tax on medical devices
- Repeal of the elimination of the employer deduction for retiree prescription drug coverage
- Repeal of 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 5.8 percent
Beginning in 2023:
- Repeal of the 0.9 percent increase in Medicare payroll tax for higher-income earners
Delayed until 2026:
- 40 percent excise tax on high-cost employer health plans, commonly referred to as the Cadillac tax
Repeal of Obamacare’s subsidies
In 2018 and 2019, the bill allows Obamacare’s subsidies to be used for catastrophic-only plans and used for qualified health plans offered on and off the exchanges. It explicitly states that subsidies cannot be used to purchase a plan with abortion coverage.
The bill also adjusts how the Obamacare subsidies are calculated for 2019. This makes them more generous for younger adults and requires older adults to pay a greater share of their income on premiums before subsidies kick in. These changes do not affect people below 150 percent of the federal poverty level.
Obamacare’s premium tax credits, cost-sharing reduction subsidies, and small business tax credit are repealed in 2020. In addition, the bill repeals the dollar amount limits placed on subsidy repayment for people who received an excess premium tax credit.
NEW REFUNDABLE TAX CREDIT
Beginning in 2020, the bill creates a new advanceable, refundable tax credit for people who are ineligible for coverage under a government program or not offered employer-sponsored insurance. To receive the credit, a person must be a citizen, national, or “qualified alien” and cannot be incarcerated.
The credit amounts vary by age:
- Under age 30: $2,000
- Between 30 and 39: $2,500
- Between 40 and 49: $3,000
- Between 50 and 59: $3,500
- Over age 60: $4,000
The credit is capped at $14,000 per family and limited to the five oldest family members. It will grow at the rate of the consumer price index plus 1 percent. The credit will begin to phase out at incomes above $75,000 for an individual and $150,000 for joint filers. The phaseout is gradual, decreasing by $100 for every $1,000 increase in income above the thresholds.
A press release from the House Energy and Commerce Committee says that the bill’s change to the amount of income that must be spent on medical expenses before deductibility creates spending room (an estimated $90 billion) for the Senate to make the new tax credit more generous for people between the ages of 50 and 64.
EXPANSION OF HEALTH SAVINGS ACCOUNTS
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. In addition, both spouses are able to make catch-up contributions, and HSA funds may be used to pay for qualified medical expenses incurred 60 days before the account is established. These changes begin in 2018.
FUNDAMENTAL MEDICAID REFORMS
The bill makes several changes to the Medicaid program. Most notably:
Removes enhanced funding for any new expansions. States that did not expand Medicaid prior to March 1, 2017, are ineligible to receive the Obamacare enhanced matching rate.
Phases out Obamacare’s Medicaid expansion. Beginning in 2020, the federal government will no longer pay the Obamacare enhanced payment rate for any new expansion-population enrollees in states that expanded Medicaid prior to March 1, 2017. All states will be allowed to cover people earning less than 138 percent of the federal poverty level, but any new enrollee after 2020 will be reimbursed at a state’s normal match rate. The Obamacare enhanced payment rate – 90 percent in 2020 – will only continue for expansion enrollees who were enrolled prior to 2020 and who do not have a break in coverage.
Increases disproportionate share hospital payments. Obamacare reduced DSH payments 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.
New safety-net funding. 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.
Reforms Medicaid program payment to per-capita caps. 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 state Medicaid spending in 2016. Funding for the elderly and the blind and disabled will increase annually at the medical care component of the urban consumer price index inflation rate plus 1 percent. Funding for all other categories will be indexed to increases in the medical care component of the urban consumer price index, which was 3.9 percent from January 2016-January 2017. DSH payments, administrative payments, and certain beneficiaries will be exempt from the caps. If a state’s spending exceeds the cap, it will have to pay back the excess funding the next year.
Optional block grant. Beginning in fiscal year 2020, states may choose to receive a block grant for providing health care for their previously-eligible adult and children populations rather than the per capita allotment. Funding for the block grant would be determined using the same base year calculation – 2016 – for the per capita allotment reforms. The grant amount will be indexed to the CPI-U inflation rate and will not adjust for changes in number of enrollees. Unspent funds may be rolled over.
Optional work requirement. Beginning October 1, 2017, states may elect to impose work requirements on their able-bodied, nonelderly, adult populations.
PATIENT AND STATE STABILITY FUND
The bill creates the Patient and State Stability Fund and appropriates $100 billion over nine years: 2018-2026. In 2020, the fund begins to require state contributions, gradually reaching a 50 percent match rate. States apply for the funds and are automatically approved within 60 days unless the administrator of the Centers for Medicare and Medicaid Services finds the state to be out of compliance.
The bill outlines many broad allowable uses for the funds:
- Financially assisting high-risk people to access health coverage in the individual market
- Providing incentives to appropriate entities to enter into arrangements with the state to help stabilize premiums in the individual market
- Reducing the cost of providing health insurance to high-cost users in the individual and small group markets
- Promoting insurer participation in the individual and small group markets
- Promoting access to preventive, dental, and vision services, as well as services and treatment for mental health and substance abuse disorders – inpatient and outpatient
- Providing payments, directly or indirectly, to health care providers for services specified by the administrator
- Providing assistance to reduce out-of-pocket costs for people enrolled in health insurance
- Providing maternity coverage and newborn care
A state must apply for the funds within 45 days of the bill’s enactment for 2018, and by March 31 for subsequent years. If a state does not apply, the CMS administrator may use its allotment to pay insurers for reinsurance purposes.
For 2018 and 2019, the formula used to calculate a state’s proportion of funding is based on two criteria. Eighty-five percent of the annual funding is based on incurred claims for benefit year 2015, and subsequently 2016, using the latest medical loss ratio data available. In order to receive a proportion of the remaining 15 percent of funding, a state must meet one of two requirements: its uninsured population for people below the federal poverty level increased from 2013 to 2015; or fewer than three insurers are offering coverage on the exchange in 2017.
Beginning in 2020, the administrator is charged with setting the allocation methodology.
The bill requires that an additional $15 billion be devoted to states for maternity coverage and newborn care, as well as mental health and substance abuse disorders.
New risk-sharing program: The bill creates a Federal Invisible Risk Sharing Program within the Patient and State Stability Fund and appropriates an additional $15 billion for it between 2018 and 2026.
The program will provide payments to health insurers for claims made by eligible people. Certain health conditions determined by the CMS administrator will automatically qualify people. The administrator must determine program details such as which conditions qualify, the attachment point, and the coinsurance rate. Any unallocated stability funds may be used for this program as well. States may take over program operation beginning in plan year 2020.
For context, Obamacare also included risk mitigation programs. Two of these programs were funded by transfers among insurance companies. One program, the transitional reinsurance program, was funded by a $25 billion assessment on health plans. Of the $25 billion, $20 billion was designated for reinsurance purposes. The reinsurance program lasted from 2014 to 2016 and was used to offset the cost of claims above a certain threshold.
New waiver: An amendment introduced by Rep. Tom MacArthur would allow states to waive certain insurance regulations imposed by Obamacare. The amendment has not been adopted by the House Rules Committee yet. As currently drafted, it allows states to waive the federal essential health benefits requirement and specify their own. It also allows states to increase their age-rating band beyond the 5:1 ratio already adjusted by the bill. In addition, in place of the continuous coverage penalty, a state that sets up or participates in a high-risk pool may impose health risk rating for 12 months on people who have not maintained continuous coverage.
Insurers will still be required to issue policies to all applicants and are prohibited from varying premiums based on gender. States must attest that the purpose of their waiver is to reduce premiums, increase the number of insured persons, or some other benefit to the public interest. A waiver application is approved unless the secretary of health and human services informs the state within 60 days of submission that the application is denied. Waivers may last up to 10 years.
OTHER NOTABLE PROVISIONS:
- Rescinds all funds for the Prevention and Public Health Fund – commonly referred to as the Obamacare slush fund – after 2019
- Increases funding for community health centers
- 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
- Repeals Obamacare’s actuarial value requirements for plans sold in the individual and small group markets beginning in 2020.
- Changes Obamacare’s age-rating restriction from 3:1 to 5:1, or a ratio determined by states
Beginning for special enrollments in plan year 2018 and for all enrollments thereafter, an insurer shall include a penalty of 30 percent of the premium cost for one year on anyone that does not maintain continuous coverage.
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