Editor’s note: This post has been edited to reflect continuing developments and emerging understanding of proposed legislative language.

It is now reported that the full House will vote on the American Health Care Act on Friday, March 24, 2017. Late on March 23, a further manager’s amendment was offered (summary here), apparently to pick up extra Republican votes.

The amendment would first delay the repeal of the Affordable Care Act’s additional Medicare tax on the wages of taxpayers exceeding $250,000 a year ($200,000 for single filers) from 2016 to 2023, and repeal a transition rule applying to the withholding of this tax by employers for 2017. This measure would raise about $63 billion in revenue.

Second, the amendment would make a number of changes to the AHCA’s Patient and State Stability Fund. Under the amendment, states would be able to use the fund for reducing the cost of insurance coverage in the individual and small group market for individuals who have high health insurance costs due to the low population density of states where they reside. The fund would also be available for maternity and newborn care and for prevention, treatment, or recovery support services for people with mental illness or substance abuse disorders. The mental health and substance use disorder funds could be focused on inpatient or outpatient clinical care and/or on early identification and intervention of children and young adults with serious mental illness. The amendment also appropriates $15 billion for 2020 for the Patient and State Stability Fund for maternity, mental health, and substance abuse purposes.

Changes Regarding Essential Health Benefits

Finally, the amendment revises the section of the ACA defining essential health benefits (EHB). First, it strikes from the definition of “essential health benefits package,” the current provision that the EHB package is to include EHB as defined, “by the Secretary” (of Health and Human Services). The EHB package, however, includes the EHB “under subsection (b).” The amendment changes the “subsection b” definition of EHB—which currently reads “Subject to paragraph (2), the Secretary shall define the essential health benefits” to cover the ten ACA EHB categories—to say “subject to paragraph (2) and (6), the Secretary shall define the essential health benefits,” to include the ten mandatory categories.  Paragraph 2 provides that EHB must be equivalent in scope to a typical employer plan.

The amendment next adds a new paragraph 6, stating:

(6) ESSENTIAL HEALTH BENEFITS FOR PLAN AND TAXABLE YEARS BEGINNING ON OR AFTER JANUARY 1, 2018.—For plan years and taxable years beginning on or after January 1, 2018, each State shall define the essential health benefits with respect to health plans offered in such State, for the purposes of section 36B of the Internal Revenue Code of 1986

All plans in the individual and small group markets that are not grandfathered (or grandmothered) must cover the EHB package. The ACA also prohibits applying annual and lifetime limits to EHB and caps out-of-pocket spending for EHB. Under the amendment, HHS would apparently continue to define the EHB for these purposes, and EHB as defined by HHS must continue to cover the ten required services and be equivalent to the typical employer plan.

For the limited purpose, however, of determining premium tax credits, states would be required to define EHB. Literally, the amendment seems to say that the state would only define EHB for purposes of determining what benefits covered by health plans can be paid for by premium tax credits, although it is also possible to read the amendment to say that states must define the EHB that must be covered by plans when the plans themselves are paid for by premium tax credits.  How the states would do so (by legislation, regulation, or guidance), and whether they would be capable of doing so by January of 2018, is an open question. (Insurers must file their 2018 plans by late June of 2017). Also, EHB are only relevant to the AHCA’s premium tax credits through 2019 in any event, because as of 2020, tax credits would be available for any plan a state considers to be a qualified health plan. In the interim, states would apparently be encouraged to increase state mandates, because any service a state considers to be EHB will be qualified for premium tax credit coverage. Under the ACA, states had to pay for services mandated above.

After 2019, when AHCA premium tax credits become fixed-dollar and age-adjusted, states would, under earlier AHCA language, certify plans that could be paid for with tax credits as “qualified health plans,” applying state standards.  States may be tempted at that point to certify very skimpy plans that could be purchased using the tax credit alone, and with the new  amendment would, at least arguably, not be barred from doing so by the EHB requirement.  This could undermine considerably the minimum benefit standards imposed by the ACA for those purchasing insurance with premium tax credits.

The amendment could raise questions under the Tenth Amendment, which has been interpreted as prohibiting the federal government from “commandeering” state governments for federal government programs. It says “each state shall define” and, unlike the ACA’s provisions with respect to exchanges, does not provide an alternative for the federal government to step in if a state chooses not to comply with the command..

It is hard to believe that this is what the drafters intended, as the whole purpose of redefining the EHB was to reduce the services covered by health plans and thus their costs. The amendment does make sense, however, in terms of a provision that could survive the Byrd rule in the Senate.

CBO Updates AHCA Score

Also on March 23, the Congressional Budget Office released another AHCA cost estimate taking into account amendments made to the bill through the manager’s amendment filed on March 20 and subsequent technical amendments. It does not take into account the March 23 amendment just discussed.

The CBO report projects that as amended by the manager’s amendment, the AHCA would reduce the deficit by $150.3 billion over ten years, $186.2 billion less than the original AHCA, which CBO estimated would reduce the budget deficit by $336.5 billion. The increased cost is due to

  • reducing the threshold for medical expense deductions from 7.5 to 5.8 percent of income ($90 billion),
  • moving up and otherwise changing the effective date of tax cuts ($48 billion),
  • changes in the Medicaid program ($41 billion, primarily attributable to increasing the inflation adjusters for aged, blind, and disabled recipients, with that increase offset in part by reducing per capital allotments to New York, allowing states to impose a work requirement, and adding a block grant option), and
  • other smaller changes. ($8 billion).

Despite the manager amendment’s significant sacrifice in deficit reduction, CBO projects that its changes will not expand coverage. CBO continues to expect that the AHCA as amended will cause 14 million more to be uninsured by 2018 and 24 million more to be uninsured by 2026, just as under the original AHCA.  The nongroup market may be slightly larger in some years, but overall the numbers are the same.  Similarly, AHCA as amended would have the same effect on health insurance premiums in the nongroup market as the original AHCA, increasing them by 15 to 20 percent in the short run but reducing them by 10 percent in the long run (for less comprehensive coverage.)