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By Harris Meyer for Modern Healthcare
Under pressure from conservatives and the business community, House Republicans have released a bill to repeal and replace the Affordable Care Act that ditches their previous proposal to tax high-value employer health plans.
The 123-page bill, dubbed the American Health Care Act, was released Monday night. It would replace the ACA’s income-based premium tax credits with fixed, age-based tax credits that generally would be smaller. It would end enhanced federal funding for states to expand Medicaid to low-income adults. And it would convert Medicaid from an open-ended entitlement to a program of capped, per-capita payments to the states.
But the bill would continue funding for the Medicaid expansion until 2020 and also keep the law’s premium subsidies through the insurance exchanges until 2020. That could set up a political battle over keeping or ending Obamacare coverage expansions just as the next presidential election campaign heats up.
GOP leaders said they would begin marking up the bill Wednesday in two committees, even though no one other than House Republicans had a chance to see it before its release. The Congressional Budget Office has not yet issued its assessment of the bill’s cost and impact on coverage levels.
House Speaker Paul Ryan has said he wants Congress to pass the complicated repeal-and-replace bill by early April through an expedited budget reconciliation process on a party-line vote. But hard-right House and Senate Republicans oppose the bill’s refundable tax credits to help people afford insurance. And at least four Senate Republicans from Medicaid expansion states oppose its repeal of the expansion and its overall cuts in Medicaid funding. GOP leaders can’t afford to lose any votes.
“House Republicans are moving forward with fiscally responsible legislation to deliver relief from Obamacare’s taxes and mandates and lay the groundwork for a 21st century health care system,” House Republicans wrote in their bill summary.
To pass the bill through the reconciliation process and avoid a Senate Democratic filibuster, Republicans will have to convince the Senate parliamentarian that all the provisions of the bill are germane to the budget. And the bill can’t be deemed to increase the federal deficit 10 years or more from now. Some of the bill’s insurance market changes may have a tough time surviving those procedural tests.
The bill would:
- Retroactively repeal the ACA’s requirement for most Americans to buy health insurance, as of the end of 2015. That may leave insurers wary about offering plans for 2018.
- End enhanced federal funding at the end of 2019 for states to expand Medicaid to low-income adults.
- Convert Medicaid to a program of capped per-capita federal grants to the states, starting in 2019. Hospital leaders are very nervous about how this would affect uncompensated care and payment levels.
- Establish age-based, refundable tax credits for premiums to help people buy insurance, with the credits phasing down starting at income levels of $75,000 for individuals and $150,000 for families. These credits would be adjusted annually by the consumer inflation rate plus 1%.
- Starting in 2018, repeal most of the ACA taxes that finance the law’s premium subsidies, Medicaid expansion and Medicare benefit enhancements.
- Retain the ACA’s so-called Cadillac tax on high-value plans but delay it until 2025.
- Eliminate minimum essential benefits requirement in Medicaid expansion plans at the end of 2019.
- Offer states $100 billion over nine years to establish high-risk pools or other mechanisms for stabilizing the individual insurance market.
- Let insurers charge a 30% premium penalty for one year for individuals who have let their coverage lapse and want to buy insurance; the penalty is meant to encourage people to maintain continuous coverage.
- Allow insurers to charge older customers five times higher premiums than they charge younger people, up from the ACA’s permitted 3-to-1 age differential.
- Repeal the ACA’s cut in funding for Medicaid disproportionate-share payments, which has not yet taken effect.
- Repeal the ACA’s subsidy to reduce low-income enrollees’ cost-sharing in private health plans, effective at the end of 2019.
- Prohibit federal Medicaid funding for Planned Parenthood or any organization that performs abortions, and bar use of tax credits for purchase of any health plan that covers abortions.
Business groups had warned that taxing employer health benefits would cause employers to terminate coverage and/or prompt employees to drop out of those plans. “It would pretty quickly expose people to income and payroll taxes, and the number of people purchasing coverage would decline,” said Kristof Stremikis, associate policy director at the Pacific Business Group on Health.
The release of the bill reportedly was delayed by objections from both conservative and moderate Republicans, as well as by a nonpublic analysis from the Congressional Budget Office showing that it would significantly increase uninsured rates. According to one report, the CBO indicated to GOP staffers that an earlier version of the House bill could cause 10 million to 20 million people to lose their employer-sponsored insurance.
Douglas Elmendorf, dean of the Harvard Kennedy School of Government and former CBO director, said under the Republican bill, the number of people covered by employer-sponsored plans could decline. That’s because some employers would stop offering coverage and let workers use the new tax credits, which would be available to a broader income group than the ACA’s credits.
In addition, younger and healthier employees may decide they could get a better deal using the new credits to buy coverage in the individual market. Employers fear that could drive up costs in their company-sponsored plans by leaving them with an older and sicker pool of enrollees.
“The employer market does pretty well in hedging against risk selection,” Stremikis said. “If you provide incentives to leave that market, you could certainly do damage.”
At the same time, the House GOP’s age-based tax credits generally would be smaller than the ACA’s, which are based on income. That could discourage lower- and middle-income people from using the credits to buy insurance, boosting uninsured rates. “These are people with very little to no discretionary income,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation. “With smaller tax credits, they’d be unlikely to consider health insurance affordable.”
The bill would erase most of the ACA’s taxes that financed the law’s premium subsidies, Medicaid expansion and Medicare benefit enhancements. But it postpones the repeal of most of those taxes until 2018, a year later than previously proposed. The CBO has projected that repealing the ACA’s Medicare payroll tax on high-income individuals, along with its surtax on net investment income, would provide $346 billion in tax relief to higher-income people over the next decade.
The only new financing mechanism that House Republicans previously had proposed was the tax on high-value employer health plans, and now that’s gone. They have not explained how they would finance their new tax credits.
It’s widely anticipated that to pay for the new system, Republicans will rely heavily on savings from constraining growth in federal Medicaid spending through their proposed per capita payment system. It was not clear at deadline for this article how the annual growth rate in these payments would be set.
In a FAQ accompanying release of the bill, House GOP leaders posed the question, “How are you paying for this plan? How much is it going to cost taxpayers?” The answer: “We are still discussing details, but we are committed to repealing Obamacare and replacing it with fiscally responsible policies that restore the free market and protect taxpayers.”
The bill would begin phasing out the premium tax credits in 10% increments starting at an income level of $75,000 for individuals and $150,000 for families. This was a concession to the most conservative Republicans, who objected to providing government subsidies to wealthier people.
But many Republicans remain worried about whether the nonpartisan CBO will score the House bill as costing a lot of money while increasing the number of uninsured Americans. Some congressional Republicans immediately denounced the cost of the new tax credits, while others insisted on waiting until the CBO scores the bill before voting on it.
“Republicans are stuck because there’s no way to maintain the current level of coverage without subsidies that are similar in magnitude to the ACA’s, and without rules for insurance markets that are similar to the ACA’s,” Elmendorf said.