GOP Tries “Repeal and Replace” One More Time as Clock Runs Out

September 20, 2017Client Advisory
Perspectives on Health Care and Life Sciences

Senate Republicans, frustrated by their failure to repeal and replace the Affordable Care Act (ACA) during the summer, are trying once again. They have only until September 30, according to a ruling by the Senate parliamentarian, to get a bill through the budget reconciliation process with just 50 senators’ votes. Given the compressed time frame, the House would have to vote in favor of whatever the Senate passes. Republicans in the House may be so sufficiently motivated that they will let go of their internal differences and pass it, though the vote would be close. No one doubts that President Trump would sign a bill sent by Congress into law.

Provisions and Effects Similar to Previous GOP Proposals

The newly proposed legislation, known as Graham-Cassidy, is at least as consequential for health care interests as the bills floated in Congress earlier in the year. Graham-Cassidy’s two main features are the undoing of the federal Obamacare coverage framework and a wholesale restructuring of the financing of the traditional Medicaid program beginning in 2020. Control over much of health coverage policy could be devolved to the states.

The Congressional Budget Office (CBO) has said that it will be unable to produce a full score of Graham-Cassidy before Congress would have to vote. However, the proposal has enough features similar to the Senate’s earlier Better Care Reconciliation Act to permit an educated observer to conclude that, when CBO does weigh in, its predictions as to the effects of Graham-Cassidy will be roughly equivalent:

  • Perhaps 20 million or more people will become either uninsured or covered by plans that offer very limited coverage.
  • Medicaid will see nearly one trillion dollars’ worth of cuts to federal contributions over the next decade, plus accelerated reductions in later years.   

Graham-Cassidy’s Key Features

Here is a brief summary of the 140-page bill’s major provisions:

Coverage Mandates: Eliminates both the individual and employer mandates retroactively to 2016, by zeroing out the penalty for non-coverage.

Taxes: Repeals the medical device tax, though is silent on other ACA-imposed taxes, such as the health insurer tax, the excise tax on high-value employer-sponsored health plans, and the Medicare payroll tax on high earners.

Medicaid Expansion: Ends enhanced federal matching funds for coverage of non-disabled adults with incomes between 100 percent and 138 percent of the federal poverty line as of January 1, 2020. Current non-expansion states could not expand between now and then.

Marketplace Tax Credits and Subsidies: Starting January 1, 2020, replaces tax credits and cost-sharing subsidies for people who purchased individual plans on the exchanges with grants to states that total $136 billion in 2020 and rise to $200 billion in 2026 and would then stop completely.

Insurance Plan Design and Pricing: Allows states to seek waivers of ACA rules so that health insurers may be exempted from minimum benefits requirements, pricing formula restrictions, some aspects of non-discrimination against people with pre-existing conditions, and minimum medical loss ratio. Starting in 2019, lets anyone buy a low-cost catastrophic plan.

Health Savings Accounts (HSAs): Permits the use of HSA funds to pay certain health insurance premiums, raises limits on contributions to HSAs, cuts taxes on HSA distributions, and allows the use of HSA dollars for fees paid for concierge-style primary care arrangements.

Abortion: Excludes from the definition of a “qualified health plan” any plan that covers abortions and prohibits federal funding for Planned Parenthood for one year after passage.

Medicaid Eligibility: Limits some types of retroactive coverage, allows states to redetermine eligibility for select groups more frequently, and allows states to impose work requirements for non-disabled, non-elderly, non-pregnant individuals.

Funding of Traditional Medicaid: Changes federal Medicaid funding from the long-standing “federal medical assistance percentage” to a per capita cap starting in fiscal year (FY) 2020:

  • The cap would be set using inflators from a base spending period of eight straight quarters between the first quarter of FY 2014 and the third quarter of FY 2017.
  • For the elderly and disabled, the inflator is the Medical component of the Consumer Price Index (CPI-M) plus one percentage point through 2024, then CPI-M after 2024.
  • For other aid categories, the inflator is CPI-M through 2024, then the CPI for urban consumers (CPI-U, of which CPI-M is a piece) after 2024.

Also allows states to choose to receive federal Medicaid funding through block grants, for minimum five-year periods, in return for added flexibility on eligibility, covered benefits, and beneficiary cost sharing. Such flexibility does not extend to the Medicaid drug rebate program, and the bill requires states taking block grants to cover mental health and substance abuse services in compliance with the Mental Health Parity and Addiction Equity Act. 

Graham-Cassidy does not repeal or alter every part of the ACA. For instance, the requirement that insurers allow children to stay on their parents’ plans until age 26 would continue. Medicare-related provisions—such as reductions to Medicare Advantage plan payments, phased-in closure of the Part D coverage gap, and the Medicare Shared Savings Program—are untouched.

Potential Effects; Implications for Stakeholders

The Graham-Cassidy bill would alter current law by reducing the total number of people who have comprehensive health care coverage that they believe they can afford. In particular, low-income non-disabled adults, the chronically ill, and people with other pre-existing conditions may worry that they will be priced out of the market altogether.

Federal marketplace subsidies would drop markedly—the Center on Budget and Policy Priorities estimates the 10-year cut at $239 billion—and the remaining fund distributions would be skewed more toward the states that did not take up Medicaid expansion under the ACA. 

Health insurers may appreciate winning some freedom from the ACA’s underwriting restrictions, though they would potentially contend with 50 different sets of state rules and may lament the shrinkage of federal dollars going toward coverage in both Medicaid—where half of all spending runs through managed care organizations—and the individual market.

Hospitals, physicians, other providers, and state governors will be concerned that Medicaid funding would become too limited to sustain appropriate coverage levels and provider payment rates in the long run.

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For additional information about the issues discussed above, please contact the Epstein Becker Green attorney or EBG Advisors consultant who regularly assists you, or the author of this advisory:

Robert F. Atlas
Washington, DC
202-861-1834
[email protected]