On March 20, 2017, the Republican House leadership released a manager’s amendment to the American Health Care Act. This amendment is intended to respond to critics of the original AHCA from the right and from the middle. It is less clear that it responds to concerns raised by the Congressional Budget Office report on the original AHCA, as will be discussed later.
- Phase out the ACA’s Medicaid expansion;
- Impose a per capita cap on Medicaid going forward;
- Eliminate the ACA’s Prevention and Public Health Fund;
- Defund Planned Parenthood;
- Repeal the ACA’s cost sharing reduction payments;
- Create a $100 billion Patient and State Stability Fund for states to use for reinsurance and other purposes;
- Repeal the ACA’s individual and employer mandate penalties;
- Create a penalty for individuals who try to enroll in coverage who have not had continuous coverage;
- Repeal the ACA’s actuarial value metal level requirements;
- Change the ACA’s age rating ratios from three-to-one to five-to-one;
- Amend the ACA’s current premium tax credits to allow them to be used for off-marketplace plans and to change the tax credit formula to make it more favorable to younger enrollees;
- Create new fixed-dollar, age adjusted tax credits for after 2020; and,
- Liberalize some requirements pertaining to health savings accounts.
The manager’s amendment leaves most of these provisions in place. It consists of two sets of amendments, labeled technical changes, (summary) and policy changes (summary). In fact, however, some of the policy amendments (which deal primarily with the Medicaid program and tax repeals) are quite technical, while a few of the technical amendments (which deal primarily with changes in the tax credit program as well as Medicaid) make significant policy changes. Speaker Ryan states that the technical changes were necessary for the House bill to comply with Senate reconciliation rules, although it is not easy to discern how they do this.
The manager’s amendment would end the ACA’s mandatory expansion for childless, nondisabled, non-pregnant adults up to 133 percent of the poverty level and sunset the ability of states to decide to cover adults above 133 percent of poverty with an enhanced Medicaid match as of the end of 2017. States could cover the ACA expansion population, however, as an optional category with their normal Medicaid match after that date. Medicaid expansion enrollees enrolled prior to the end of 2019 would retain the enhanced match after 2019 (90 percent in 2020), but only so long as they remained continuously enrolled and only in states that had expanded Medicaid by March 1, 2017.
The manager’s amendment would allow states to impose a work requirement on nondisabled, nonelderly, non-pregnant adults as a condition of Medicaid coverage. The requirement is modeled after requirements and exemptions in the TANF program. States could include as countable work activities subsidized private or public sector employment, on-the-job training, job search or readiness activities, community service programs, various educational programs, or providing childcare to an individual participating in a community service program.
In fact, most Medicaid expansion adults who are capable of working are currently employed, usually at low-wage jobs that do not offer health insurance. Indeed, expansion population adults have a better record of workforce participation than the general population. Nevertheless, getting Medicaid beneficiaries to work was a key demand of conservatives and thus an optional work requirement is in the amendments, along with a 5 percent administrative cost bump for states that impose work participation programs, recognizing the considerable bureaucracy necessary to run such programs.
The policy amendments make a few changes, mainly technical, in the AHCA’s Medicaid per capita cap program. One of these modifies the matching formula for the state of New York in a manner intended to force the state to rely less on tax contributions from rural counties and more on state tax revenues to fund Medicaid. (The local tax relief specifically does not apply to New York City). This provision was apparently necessary to secure votes from upstate New York Republicans.
In perhaps the biggest change wrought by the manager’s amendments, states would be allowed to choose a block grant rather than a per capita cap to fund their traditional adult and children populations otherwise covered by the per capita cap. Block grants would not be available for the elderly and disabled. States choosing a block grant would be given considerable flexibility in determining which populations they would cover (although they would have to cover certain low-income women and children) and the services they would provide to them. A plan submitted by a state to administer a block grant program would be deemed approved unless HHS concludes within 30 days that the plan was incomplete or actuarially unsound. The amendment includes formulas for calculating block grant amounts and inflation updates.
The manager’s amendment appropriates $1 billion to fund the administration of the Medicaid per capita cap and Patient and State Stability Fund programs and changes in the tax credit program.
The amendments add an additional year to the relief the AHCA offered from the “Cadillac” plan excise tax, moving implementation from 2025 to 2026, and accelerate the repeal of all other ACA taxes from 2018 to 2017, including repeals of:
- The $500,000 limit on business expense deductibility for compensation to insurance executives;
- The branded prescription drug tax;
- The health insurance tax (already subject to a moratorium for 2017);
- The Medicare tax imposed on unearned income on taxpayers earning more than $200,000 ($250,000 for joint filers) (An amendment offered by Democrat Danny Davis would have required that the persons, primarily millionaires, who benefit from this tax break take a drug test before qualifying for this tax benefit but was defeated in committee);
- The prohibition against paying for over-the-counter medications with tax subsidized funds from health savings accounts (HSAs), Archer MSAs, or flexible spending or health reimbursement arrangements;
- The ACA’s increase in the penalty for the use of HSA and Archer MSA funds for non-medical purposes (reducing the penalty from 20 to 10 percent for HSAs and 20 to 15 percent for MSAs);
- The ACA’s $2500 limit on contributions to flexible spending accounts;
- The medical device excise tax;
- The requirement that employers reduce their deduction for expenses allowable for retiree drug costs without reducing the deduction by the amount of retiree drug subsidy;
- The repeal of the ACA’s Medicare 0.9 percent tax surcharge on taxpayers with incomes exceeding $200,000 ($250,000 for joint filers); and,
- The ACA provision prohibiting the use of tax-subsidized account funds to purchase over-the-counter drugs.
The tanning tax repeal is accelerated by six months and repealed effective June 30, 2017, reflecting the quarterly collection of the tax.
Finally, the manager’s technical amendment would move up by one year to 2017 the repeal of the ACA’s provision that increased the Medical Expense Deduction threshold to 10 percent of adjusted gross income. The amendment also, however, reduces the threshold further from the 7.5 percent threshold found in pre-ACA law to a new lower 5.8 percent threshold. The idea is apparently to provide additional tax relief for persons, and in particular older persons with lower-incomes, who have high medical expenses, including expensive health insurance premiums. Of course, since the tax relief is provided as a deduction rather than a credit, it will be of little use to low-income consumers who do not pay income taxes or are in very low tax brackets.
Language in the Energy and Commerce Committee press release on the manager’s amendment suggests that the additional funding included in the manager’s amendment for this additional tax relief could be redirected by the Senate to provide additional tax credits for older enrollees. This may be the reported $85 billion that the House is offering the Senate for this purpose. Of course, the fixed-dollar tax credits provided by the AHCA disadvantage (compared to the ACA) not just older people but also low-income consumers and consumers living in areas where premium costs are high, and it is inconceivable that this change in the medical cost deduction threshold would provide the Senate sufficient funds to fix all these problems.
The bill does make some truly technical changes, such as correcting grammatical and typographical errors, renumbering certain provisions when others are omitted, and adding “fiscal” before year. It also makes more substantive changes in the Medicaid section of the bill, clarifying the duration and scope of the AHCA’s Safety-Net Fund for non-Medicaid-expansion states and how non-DSH supplemental payments are accounted for under the per-capita cap calculation.
The remaining technical changes deal with the non-Medicaid provisions of the AHCA. One very confusing provision clarifies (I think) that 15 percent of the Patient and State Stability Funding for 2018 and 2019 is to be allocated to states where the uninsured rate for individuals with incomes below 100 percent of the poverty level decreased less than in other states between 2013 and 2015, as well as to states with fewer than three insurers offering qualified health plans through the exchange for 2017.
Another provision clarifies that the 30 percent of premium penalty imposed on consumers who seek coverage after a gap in coverage applies only in the individual and not in the small group market. Despite the fact that the CBO concluded that the provision would discourage rather than encourage market participation by healthy individuals, the AHCA retains this continuous coverage penalty.
The AHCA retains the ACA’s current premium tax credits as section 36B of the Internal Revenue Code with various changes, including allowing the use of the tax credits for non-marketplace plans and changing the formula for calculating premium tax credits to favor younger enrollees. It would repeal Section 36B at the end of 2019 and then create a new tax credit program in a new section 36C of the Code.
The manager’s amendment instead simply amends section 36B as of January 1, 2020 to provide the new tax credits in place of the old tax credits. It strikes the provisions repealing the current 36B, stating that this is done “to accommodate the technical restructuring of the new tax credit made as a result of Senate guidance to maintain the privilege of the bill,” apparently to ensure that the changes were within the jurisdiction of the committees to which reconciliation is assigned in the Senate. The managers’ amendment approach also allows AHCA to retain by cross reference some of the provisions of the current section 36B (and current section 1412, which provides procedures for determining eligibility for advance premium tax credits), apparently also for Senate procedural reasons, but it seems to me on the whole more confusing than the approach of the original AHCA.
Revisions To AHCA’s Tax Credits
The remainder of the manager’s amendment is an extensive rewriting of the flat-dollar, age-adjusted tax credit provisions that would go into effect for 2020. The summary again says that this rewriting is “a result of Senate guidance to maintain the privilege of the bill.” The rewriting primarily shortens the section by including cross-references to existing legislation, but does make some substantive changes.
The tax credits, for example, would seemingly no longer be available to pay for unsubsidized COBRA coverage. Veterans who are eligible for but not enrolled in Veterans’ Administration coverage would no longer qualify for tax credits. The excess of tax credits that exceed the cost of insurance coverage would no longer be available to be paid into HSAs, reportedly because of a concern that they might thereby become available to pay for abortions. A provision was removed dealing with contracts of insurance that cover individuals other than a taxpayer or the taxpayer’s qualifying family members. A new provision was added, mirroring current regulations, allowing married persons who are living apart from their spouse and unable to file a joint return because they are victims of domestic violence or spousal abandonment to receive the tax credits without filing a joint return for up to three years.
The amendments retain current ACA section 1412, which sets out procedures for determining advance premium tax credits, but add a provision to it giving HHS and the IRS extensive discretion to establish and operate a program for advance payment of tax credits for individuals covered by qualified health plans (as defined by the states) “whether enrolled in through an Exchange or otherwise.” HHS and the IRS are instructed to protect taxpayer information, provide “robust verification of eligibility,” “ensure proper and timely payments” to insurers, and protect program integrity.
Extensive provisions in the original AHCA dealing with advance payment of tax credits, including provisions dealing with the application of advance premium tax credits to off-exchange plans, have been dropped. AHCA provisions requiring reporting of available employer coverage—which would disqualify individuals from eligibility for individual market premium tax credits—and reporting by insurers regarding receipt of advance premium tax credits, have also been dropped, as have disclosures of eligibility verification information by the IRS. There is no indication in the bill or summary as to whether this information is to be submitted under current provisions of the ACA which are not repealed, under regulations promulgated by HHS and the IRS, are dropped altogether, or are to be added back by the Senate.
Other provisions of the AHCA remain un-amended.
What Comes Next?
The manager’s amendment may come up before the House Rules Committee on Wednesday, March 22, and pass the full house on Thursday, March 23, the seventh anniversary of the ACA’s enactment. It is not clear whether a CBO report will be available before that date. It is hard to see much in the manager’s amendment that would reduce the CBO’s estimate that 24 million individuals would lose coverage under the AHCA, unless the CBO scores block grants differently from per capita caps or gives credit for potential Senate action extending tax credits for older Americans.
It seems clear, however, that the much of the $337 billion in deficit reduction that the CBO credited to the AHCA disappears under the manager’s amendment. Moving up the repeal of the ACA’s taxes is likely to cause a revenue loss of at least $40 billion, plus whatever the decrease in the threshold for deducting medical expenses might cost — reportedly $85 billion, which the Senate can reallocate to tax credits for older enrollees. (The health insurer tax was already subject to a moratorium for 2017, and thus moving up repeal of this tax will not contribute to the loss.) The bill would also increase the inflation update for the per capita cap funding. But apparently the House leadership believes that the extra expenditures have bought enough votes to get the repeal through the House, and that seems to be its first priority at this time.