Yesterday, Senate Republican leaders released a discussion draft of their version of health-care legislation, the Better Care Reconciliation Act (BCRA). Senate Majority Leader Mitch McConnell plans to put this legislation to a vote next week with the expectation of passing it.
The Senate Republican plan is best understood as a GOP amendment to the existing Affordable Care Act (ACA). Indeed, one could imagine that, back in 2009, if the Republicans had attempted to modify rather than defeat the ACA, this is the kind of amendment they would have offered. The BCRA repeals most of the tax hikes of the ACA, cuts back substantially on the spending in the ACA, eliminates enforcement of the ACA’s individual and employer mandates, and provides more space for state decision-making and initiative. Even with these changes, much of the ACA’s structure is left in place.
The following is a condensed summary of the main features of the Senate proposal with some thoughts about the bill’s likely effects.
Building on the ACA’s Tax Credits
The House-passed American Health Care Act (AHCA) would repeal the ACA’s premium credits, which are adjusted based on household income, and replace them with age-adjusted tax credits that are not scaled to income except for households with incomes above $75,000 per year. Senate Republicans have chosen to use the ACA’s premium credit structure as their starting point rather than the AHCA’s age-adjusted credits.
The Senate legislation would make three important changes to the ACA’s premium credit structure. First, it would add an age-adjustment to them, beginning in 2020. Second, it ties the calculation of these credits to higher-deductible insurance plans, which means the value of the credits would be lower. Third, it would allow taxpayers below 100 percent of the federal poverty line (FPL) who are ineligible for Medicaid to get the credits, too.
Providing tax credits for insurance enrollment for persons below 100 percent of the FPL is an especially consequential proposal. Nineteen states have not expanded their Medicaid programs under the terms of the ACA, leaving millions of people with incomes below the poverty line without a realistic option of getting health insurance. As federal support for Medicaid is lowered in future years, more people are likely to become eligible for this tax credit, which, unlike Medicaid, is financed entirely by the federal government.
Very low-income households receiving this credit could enroll in health insurance while paying minimal premiums themselves. A person with income at the 2017 federal poverty level would pay a maximum of 2 percent of their income, or $23.10 a month for coverage; they could also pay less if they use their federal credit to purchase a plan with a premium below the median price of a plan in the market. The credit is also tied to age, with older persons expected to pay higher premiums. People in their 20s with incomes at 350 percent of the FPL would pay a maximum of 6.4 percent of their income in premiums, which equals $260 a month; a person in his 60’s with an income at the same level would pay a maximum of 16.2 percent of his income, or $655 per month.
Far-Reaching Medicaid Reforms
Like the House bill, the Senate legislation includes far-reaching reforms to the Medicaid program. First, the bill would roll back the enhanced federal matching funds for Medicaid over the period 2020 to 2024. States would be allowed to maintain enrollment for the population covered by the ACA, but at the regular, rather than enhanced, federal match rates.
The Senate bill also places a new per-person limit on the amount of federal matching funds for five different categories of Medicaid enrollees. The per-person limits are based on state-specific pattern of spending for these populations in recent years. These limits would be indexed to grow with inflation in the medical services sector through 2024, and then by the consumer price index in 2025 and later.
Because Medicaid spending typically grows faster than general inflation, indexing the per-capita limits to the CPI would lower long-term federal spending on the program by large and growing amounts. That places pressure on states to reduce Medicaid cost growth, but would not penalize states for increases in enrollment.
States would be allowed to apply for a block grant for their non-elderly and non-disabled populations in lieu of per-capita spending limits. The initial block grant funding would be based on what the state would receive for this population based on the per-capita formula. The block grant would run for a minimum of five years and would be indexed to the CPI after the first year.
Additional Funds and State Waivers
The Senate bill provides separate funding to support a number of different objectives. There is a $50 billion, four-year State Stability and Innovation Fund, provided to the Centers of Medicare and Medicaid Services (CMS) to fund programs that lower the risk on insurers of participating in the individual insurance market. The bill also includes a separate $62 billion, eight-year fund for the states which could be used to help lower premiums for high-cost insurance enrollees and to generally stabilize and lower premium payments in the non-group market. States would be required to provide matching payments to receive these federal funds.
The Senate bill provides funding for the ACA’s cost-sharing reduction program through 2019. That addresses the immediate financial crisis facing insurers and buys time for federal and state governments to make further changes to stabilize the exchange market for the long run.
States would be granted additional flexibility to modify insurance market rules through state innovation waivers under section 1332 of the ACA. It appears that states would be able to modify essential health benefits but would not be permitted to change community rating, which requires that individuals with pre-existing conditions be charged the same premium as those without such conditions.
Effects on Coverage
The effect of the proposed legislation on insurance enrollment is not yet clear. On the one hand, the bill provides much higher subsidies for insurance enrollment for low-income households than the AHCA. One would expect these subsidies to lead to greater insurance enrollment than under the House bill. On the other hand, the BCRA does not include any provision requiring individuals to obtain health insurance. The bill repeals the ACA’s individual mandate but does not include the House provision that imposes a one-year, 30-percent premium surcharge on individuals applying for coverage who failed to remain continuously insured.
On balance, we expect the BCRA to boost insurance enrollment compared to the House-passed bill. However, the Congressional Budget Office (CBO) is likely to conclude that a substantial number of people would drop out of insurance enrollment under the Senate bill compared to current law. The effect of an estimate of this kind on the Senate debate will depend on the size of what CBO expects to be the increase in the uninsured population, and the assumptions the agency makes in producing the estimate.