Late on the night of Sunday, September 24, 2017—only 72 hours before a final vote on the bill is expected—a new version of the Graham-Cassidy bill was released. Although much of the bill is the same as the draft released earlier, there are significant changes. On initial review, these seem to be aimed primarily at two purposes:
- undergirding the argument of the bill’s sponsors that it does not exclude coverage for people with preexisting conditions and,
- substantially increasing funding for states represented by some of the GOP Senators who have expressed concerns about the bill.
This post analyzes the non-Medicaid provisions of the new version. A post summarizing the Medicaid changes will follow.
The new draft provides full revised legislative language rather than specific amendments tied to the earlier draft. It is only slightly longer and retains many of the key provisions of the underlying bill. Like the earlier bill, it would:
- end the Affordable Care Act’s provision that caps the amount of premium tax credit that low-income individuals must repay when they receive excess premium tax credits because their income is higher than estimated;
- repeal the ACA’s premium tax credits, cost-sharing reduction payments, small business tax credits, and Medicaid expansions as of the end of 2019;
- bar health insurers from receiving ACA tax credits for plans that cover abortion other than when necessary to save the life of the mother or in cases of rape and incest as of the end of 2017 (this would likely make many plans illegal that have already been approved for 2018, causing headaches for state regulators);
- end the individual and employer mandate penalties retroactively as of the end of 2015 (presumably requiring the IRS to refund penalties already paid);
- terminate funding for Planned Parenthood (and any similar organizations) for one year;
- repeal the ACA’s Medical Device Tax, reinstate the deduction businesses can take for subsidies they offer for retiree Part D prescription drug plans; and reinstate and extend a host of subsidies for health savings accounts, but leave other ACA taxes in place;
- defund the ACA’s prevention and public health fund as of 2019; and
- increase community health center funding by $422 million for 2017.
The Exchanges, Stabilization Fund, And Block Grants
Unlike the earlier draft, the new draft does not repeal the ACA provisions that allow exchanges to determine eligibility for tax credits. It thus appears to fully retain the ACA’s exchanges, although their function and funding under the new bill is problematic.
Like the earlier Graham-Cassidy draft, the new draft would provide a short-term individual market stabilization fund of $10 billion for 2019 and $15 billion for 2020 (but none for 2018). It would also include block grant funding available to the states for 2020 through 2026 to take the place of the ACA’s premium tax credits, cost-sharing reductions, Basic Health Program funding, and Medicaid expansions. The formula, which will be described shortly, has been changed to some extent, although its elements are similar. The uses to which states can put the block grants are also similar. These include:
- providing coverage for high-cost individuals, presumably through high-risk pools or special premium subsidies;
- subsidizing health insurers to reduce premiums, presumably through a reinsurance program;
- payments to health care providers for health care services;
- providing assistance to reduce out-of-pocket costs;
- providing assistance to individuals who do not have access to employer coverage to help them purchase individual market coverage;
- providing private market coverage for individuals who are eligible for Medicaid (only 15 percent of a state’s grant can be used for this purposes–up to 20 percent with permission from HHS); and
- assisting purchase of health care for individuals who are not eligible for Medicaid through arrangements with managed care companies.
Under the new draft, at least 50 percent of the funds must be used to provide assistance to people whose modified adjusted gross income falls between 45 and 295 percent of the federal poverty level. This would seem to mean that states could spend up to half of their block grants on people not eligible for current ACA subsidies.
A Confusing Picture That Still Appears To Allow Higher Premiums For Those With Preexisting Conditions
Like the earlier version, the latest draft allows states that obtain block grants to waive certain consumer protections contained in the ACA. The latest version, however, tries to be more specific as to the provisions a state may and may not waive. The bill imposes several limitations on state consumer protection waivers. As in the earlier version, a state must describe in its funding application “how the State shall maintain access to adequate and affordable health insurance coverage for individuals with preexisting conditions.” As with the earlier draft, however, the consumer protections that the bill does allow states to permit insurers to waive makes protection for people with preexisting conditions very tenuous.
A state must also certify that it will ensure compliance with the ACA requirement that insurers and health plans cover adult children up to age 26 and several pre-ACA insurance reform requirements—minimum hospital maternity stays, coverage of reconstructive surgery following mastectomies; mental health parity, and protection of genetic information.
Subject to these and other restrictions, through a new section added at its end, the bill permits states to waive, for programs established to accomplish purposes 1, 4, 5, and 7 in the list above, certain ACA requirements that bar states from:
- allowing insurers to vary premium for coverage, except that states would still be barred from allowing insurers to vary premiums based on sex or genetic information (There is no specific prohibition, as in the earlier draft, prohibiting rate variation on constitutionally prohibited categories, such as race or national origin.);
- allowing insurers to charge premiums to individuals at enrollment or renewal that vary from those charged other similarly situated individuals;
- allowing insurers to offer coverage that does not meet the ACA’s benefit requirements;
- allowing insurers to establish multiple risk pools.
.In establishing these rules governing insurers, states and insurers may disregard a number of ACA consumer protections. These include the ACA’s:
- essential health benefit requirements,
- actuarial value and metal level requirements;
- out-of-pocket limit requirements;
- requirement that insurers offer child-only plans,
- requirement that insurers cover preventive services without cost sharing,
- single risk pool requirement, and
- age and area rating requirements.
The section-by-section summary of the new draft says that states would not be able to waive existing law prohibitions on “discrimination based on preexisting conditions, guaranteed issue, guaranteed renewability, annual or lifetime limits, dependents on parents’ health insurance, or mental health parity.”
The new draft would, however, explicitly allow states to permit insurers to vary premiums based on categories other than sex or genetic information, which would seem to permit insurers to charge individuals with preexisting conditions higher premiums, even at renewal of their existing coverage. Insurers might have to sell coverage to people with preexisting conditions, but it could be very expensive (although, the earlier provision requires the states to describe how they will make “adequate and affordable” coverage available to people with preexisting conditions, whatever that means). Of course, simply by imposing high age-rating ratios insurers could make coverage unaffordable for many older people with health problems.
Although the new rules would preserve parity between mental health and substance use disorder coverage and medical coverage for plans that offer mental health and substance use disorder coverage, it would repeal the ACA requirement that individual and small-group plans cover mental health and substance use disorder services. Although it does not explicitly repeal the ACA’s bans on annual and lifetime limits, because those provisions only apply to essential health benefits, if a state abolishes or limits the essential health benefits it has rendered the ban on annual and lifetime limits meaningless.
The draft would explicitly allow states to permit insurers to create very-high-deductible plans that would cover very limited services, and to put them in a separate risk pool from more extensive coverage, dramatically increasing premiums for people with preexisting conditions. Finally, the new rules created by the states would only apply to plans subsidized under the new block grants—this would seem to expose the remaining ACA-compliant market to severe adverse selection.
Playing Favorites Among States
As noted earlier, the new draft also redistributes the block grant funding to the states under new rules. The basic theme of the redistribution seems to be how many different ways you can spell A-L-A-S-K-A, although the redistribution also reportedly favors Arizona, Kentucky, and Maine, other states with senators that have expressed concerns about the first draft. This would seem apparent in the state numbers put up by the bill’s sponsors, which show increases for these states, although the numbers put out by the sponsors earlier on the first draft were widely criticized as understating the cuts states would experience under the bill.
First, the new draft expands support for “low-density” states, a definition that includes Alaska and several other states with low-population density. The new draft reserves 5 percent of the $25 billion in short-term 2020-2021 market stability funds for low-density states. It increases the amount of the “base period” which serves as the basis of block grant funding for low-density states where current spending per capita is more than 20 percent of the mean of per capita spending for other states, a category that may only include Alaska. It includes a special contingency fund of $11 billion for 2020 and 2021, 25 percent of which must go to “low-density” states. (The other 75 percent goes to states that did not expand Medicaid.)
The bill also includes $500 million for 2020 for states that have obtained 1332 waivers as of the date of enactment, which would presumably include Alaska, Hawaii, and Minnesota. It further includes $750 million a year for states that expanded Medicaid after December 31, 2015. This would include Montana and Louisiana (Senator Cassidy’s home state).
Finally, the Medicaid section of the bill includes a number of provisions to benefit American Natives and Alaskan Natives, including those who were covered by the Medicaid expansions and would under the bill be covered by traditional Medicaid. These groups make up a major segment of Alaska’s Medicaid expansion population.
The favoring of certain states over others in the new version of the bill, presumably to please Senators representing the favored states and obtain their votes, raises serious constitutional issues. Law Professor Brian Galle has argued that it would violate the Constitution’s Uniformity Clause, which prohibits laws specifically favoring particular states. When the drafters of the ACA attempted to offer special provisions for particular states (which were subsequently dropped from the final bill), attorneys generals from twelve less-favored states asserted that the provisions were unconstitutionally arbitrary. Although the most recent draft of Graham-Cassidy is being offered with no time for debate—much less extensive legal analysis–it would seem to face constitutional objections at least as great. Like the ACA, if passed it could provoke endless litigation and future trips to the Supreme Court.
The Funding Formula
Beyond the changes in the bill apparently intended to obtain the votes of particular hold-out senators, the formula resembles that found in the earlier bill. The bill appropriates block grant funding for each year from 2020 to 2026 that begins at $146 billion and ends at $190 billion. As in the earlier bill, no funding is provided beyond 2026.
A base period would be calculated for each state based on the Medicaid expansion money, premium tax credits, cost-sharing reduction payments, and Basic Health Plan funding received by the state during four quarters prior to 2018 (with a special provision allowing Wisconsin, home state of cosponsor Ron Johnson, to include in its base period funding money it received under a Medicaid waver to cover individuals with incomes up to 100 percent of the poverty level, and the base period adjustment for Alaska mentioned earlier). The base period would be trended forward to 2020 using specified adjustments.
Beginning in 2021, however, the formula would begin to phase in an adjustment based on the proportion of each state’s legally resident population with an income between 45 and 133 percent of the poverty level, similar to the adjustment in the earlier bill. This adjustment, however, would only account for one-tenth of each state’s allotment for 2021 and an additional one-tenth for each succeeding year, so that as of 2026, when appropriated funding ends, it would account for six tenths of funding received by a state. No state could see a funding increase exceeding 25 percent in any given year.
As in the earlier draft, funding amounts would be additionally modified for a risk adjustment program based on comparative clinical risk and a population adjustment factor, based on factors such as demographies, wage rates, cost of care, income levels and other factors as determined by HHS. Both adjustments would phase in beginning in 2023. The clinical risk adjustment could not vary a state’s amount by more than 10 percent, but there is no limit on the population risk adjustment. The total amount offered the states cannot exceed the total amount appropriated.
States must apply for funding by March 31, 2019 if they want 2020 funding. Before states can put together their applications, final rules from HHS will be needed to clarify how the funding will be distributed and what waivers are permitted. Four state legislatures do not meet in 2018, and others have truncated sessions. State waiver applications are likely to be controversial, and states will find it difficult to get their applications together in what may be less than a year.
Applications for funding would be approved through 2026. HHS could revoke or modify funding, however, if a state used the funds for purposes other than those described in its application or failed to pay providers or insurers. A state’s funding apparently could not be revoked simply because the state does not provide affordable and adequate coverage for persons with preexisting conditions.