Senate Republican leaders have posted a draft of their eagerly awaited proposal for changing the current Affordable Care Act health insurance market rules.
A copy of the draft is available here.
The drafters’ own summary of the draft is available here.
Senate Majority Leader Mitchell McConnell, his aides and others developed the draft in response to the American Health Care Act bill, H.R. 1628, that the House passed 217-213 in May. The drafting team has been working behind closed doors for weeks.
Drafters have tried to win support from the centrist Republican senators who believe that the government should play an active role in maximizing access to coverage while keeping the support of the senators who want to minimize the role of the federal government in the health care market.
The new, Senate draft of H.R. 1628, the Better Care Reconciliation Act of 2017 bill, weighs in at 142 pages.
McConnell said today on the Senate floor that he expects the Congressional Budget Office to post a review of the draft next week.
Here’s a summary of provisions of possible interest to insurance agents and financial advisors, including the provisions dealing with:
The Affordable Care Act coverage mandates.
The premium tax credit subsidy program.
New state health insurance market subsidy provisions.
The stabilization and shutdown of the Affordable Care Act cost-sharing reduction subsidy program.
Affordable Care Act taxes.
Medicaid enrollee work requirements.
Multi-state health plans for small employers.
The Affordable Care Act minimum medical loss ratio provision.
State efforts to get waivers from the usual Affordable Care Act commercial health insurance rules.
Mandates (Draft Sections 104 and 105)
Today, the Affordable Care Act imposes an “individual shared responsibility penalty” on many individuals who fail to own what the government classifies as “minimum essential coverage,” or solid coverage, for enough of the year.
The law also imposes a penalty on some large employers that fail to offer workers affordable coverage with a minimum value, if those workers then go on to qualify for Affordable Care Act premium tax credit subsidies.
Like the House American Health Care Act bill, the Better Care draft would zero out the Affordable Care Act individual and employer coverage mandates.
Premium Tax Credits (Draft Section 102)
Today, the Affordable Care Act system offers premium tax credit subsidies to Affordable Care Act public exchange plan buyers with household income from 100% to 400% of the federal poverty level.
The House American Health Care Act bill would replace the current income-based premium tax credit program with a new premium tax credit subsidy program based mainly on a consumer’s age. Access to the House credit would start phasing out only for an individual with an income over $75,000, or a couple with income over $150,000.
The Senate draft would create an age-based premium subsidy with income limits that were more strict than the current Affordable Care Act income limits. The Senate would limit access to premium tax credit subsidies to people with household income under 350% of the federal poverty level.
The share of income people could be expected to spend on health coverage premiums would depend both on age and income.
A 20-year-old with income at 99% of the federal poverty level could be expected to spend just 2% of income on premiums.
A 60-year-old with income at 349% of the federal poverty level would be expected to spend 16.2% of income on premiums.
The Senate draft would also change the nature of the benchmark plan used to calculate the subsidies.
Today, the current tax credit system ties the size of subsidy a consumer gets to the cost of the second cheapest silver-level plan in a market, or to a plan that covers about 70% of the actuarial value of an official “essential health benefits” package.
The Senate draft would replace the current benchmark with a new benchmark. The new benchmark would be based on the median cost of coverage for low-end, bronze-level plans, or plans that cover at least 58% of the actuarial value of the essential health benefits package.
Most of the premium tax credit program changes would apply to tax years starting after Dec. 31, 2019.
New Stabilization Subsidies (Draft Section 108)
The House American Health Care Act bill would replace the current cost-sharing reduction subsidy program, and the expired Affordable Care Act risk corridors and reinsurance insurer support programs, with a state grant program. The House bill would provide $100 billion in state subsidy money through 2026.
It’s not clear how the value of the House grant program compares with the value of the federal subsidy programs the House grants would replace. One concern is that, even if the value of the proposed grants and the old subsidies were comparable, states might find ways to spend the grant money on bridges, airports or football stadiums.
The Senate draft would provide $50 billion in short-term state health insurance market stabilization grants for the four-year period from 2018 through 2021.
The draft would also provide $62 billion in long-term state stabilization grants for the eight-year period from 2019 through 2026.
For 2019, 2020 and 2021, the administrator of the Centers for Medicare and Medicaid Services, an arm of the U.S. Department of Health and Human Services, would have to make sure that states were using at least $5 billion of the support money on efforts to stabilize individual major medical premiums and keep issuers in the individual market.
Draft Section 107 would provide $500 million in funding for a new state grant administration agency, the Better Care Reconciliation Implementation Fund. The new fund administration agency would be part of HHS. The draft does not say whether the fund administration agency would be part of the Centers for Medicare and Medicaid Services.
Cost-Sharing Reduction Subsidy Program (Draft Sections 207 and 208)
The current Affordable Care Act system provides a subsidy to help public exchange plan users with household income under 250% of the federal poverty level pay their deductibles, co-payments and coinsurance amounts.
House Republicans have sued to block program payments, arguing the administration of former President Barack Obama had no congressional permission to begin making the payments.
The new Better Care draft would provide funding for making cost-sharing reduction program payments for the period “beginning on the date of enactment of this act and ending on December 31, 2019.”
Federal regulators would also have permission to make any of the adjustments needed to administer the subsidy program for 2018 and 2019 through Dec. 31, 2020.
The cost-sharing reduction funding provision does not appear to apply to subsidy program payments for 2017 or earlier years.
Draft Section 208 would repeal the subsidy program for years beginning after Dec. 31, 2019.
Affordable Care Act Taxes and Tax Changes (Draft Sections 108 Through 120)
Like the House American Health Care Act bill, the new Senate Better Care draft would repeal or change many Affordable Care Act taxes and tax rules. Here’s a look at a few of the highlights.
(Photo: Allison Bell/TA)
Over-the counter drugs: The Affordable Care Act makes use of flexible spending account and health savings account funds to pay for over-the-counter drugs without a prescription taxable. Section 109 of the new draft would repeal that provision for tax years beginning after Dec. 31, 2016.
Cadillac plan excise tax: Many employer and labor groups have been fighting against the Affordable Care Act “Cadillac plan” excise tax, which would impose a 40% excise tax on high-cost health benefits packages.
The House American Health Care Act bill would suspend the provision for tax years from 2020 through 2025, then bring it back in 2026, because of the Senate rules for handling budget measures.
Section 108 of the Senate Better Care draft would suspend the tax for 2020 through 2025, then bring the tax back for 2026.
Health insurer tax: Section 114 of the new draft would repeal the tax for 2017.
Medical expense deductibility threshold: The Affordable Care Act raised the medical expense deduction threshold to 10%. Section 116 would cut the deduction threshold to 7.5% for tax years starting after Dec. 31, 2016.
Medicare surtax: Like the House American Health Care Act bill, Better Care draft Section 117 would eliminate the 0.9% “additional Medicare tax” on high earners for any tax year beginning after Dec. 31, 2022. In an early version of the House bill, the House proposed eliminating the surtax starting with the 2018 tax year.
Net investment income tax: Like the House American Health Care Act bill, Better Care draft Section 119 would repeal this 3.8% tax on households with high investment earnings for tax years starting after Dec. 31, 2016.
Optional Medicaid Work Requirements (Draft Section 131)
The Senate draft includes many Medicaid program provisions. One, Section 131, would let a state require some Medicaid enrollees to meet work requirements.
A state Medicaid program could not apply a work requirement to disabled, elderly or pregnant individuals, to individuals under 19 years of age, or to single parents under the age of 20 who were still in school or participating in employment training programs.
Small Business Risk-Sharing Pools (Draft Section 139)
The Senate Better Care draft would create a small business risk-sharing pool program that would be similar to, but different from, the multi-state association health plan program that could be created by H.R. 1101, the House Small Business Health Fairness Act association health plan bill.
The Senate Better Care program would require the issuer of multi-state “small business health plan” coverage to be a company that also offers coverage in the large-group market.
The sponsor would have to be a permanent entity, such as a trade group, that exists for purposes other than providing health benefits.
The Better Care plan would have to pay $5,000 for plan certification by the U.S. secretary of Labor.
The “covered employees” who could sign up for a small business health plan would have to be active or retired owners of a participating company, officers, directors, employees, partners or dependents of other people eligible to participate through their connections with the company.
The employers participating in a small business health plan could not provide coverage for employees or other individuals with health problems in the individual market, if those individuals were excluded from the small business health plan because of their health problems.
The federal provision would preempt any state laws that blocked employers’ access to a Better Care plan.
Insurance regulators in the plan’s state of domicile would be in charge of regulating the coverage.
Age Banding (Section 204)
The Affordable Care Act lets coverage issuers charge the oldest adult enrollees three times as much as they charge the youngest adult enrollees.
Like the House American Health Care Act bill, the Senate Better Care draft would increase the maximum ratio of prices for adult enrollees in the oldest age band and the youngest age band to 5 to 1.
Minimum Medical Loss Ratio (Section 205)
The Affordable Care Act requires a major medical issuer to spend at least 85% of large-group premiums, and 80% of individual and small-group premiums, on health care and quality improvement efforts or else send rebates to the enrollees.
The Senate Better Care draft would cancel the federal minimum medical loss ratio rule for plan years beginning on or after Jan. 1, 2019.
The draft would put each state in charge of setting its own minimum medical loss ratio and rebate rules.
In the past, health insurance agents and brokers have asked federal regulators to exclude their compensation from the federal minimum loss ratio formula. The current Better Care draft does not mention any changes in the rules for calculating medical loss ratios.
This provision seems to be something that the Senate added. There does not appear to be a similar provision in the American Health Care Act bill.
Affordable Care Act Rule Waiver Program (Draft Section 206)
The Affordable Care Act itself includes a Section 1332 waiver program provision that lets states apply for changes in Affordable Care Act rules. The Obama administration held that states should not use the Section 1332 program to weaken Affordable Care Act coverage rules, such as the ban on medical underwriting.
The House American Health Care Act bill would create a detailed new waiver program that could let states change their essential health benefits package standards, or, possibly, allow medical underwriting for at least some consumers.
The Senate Better Care draft would let states propose alternative means for increasing access to affordable coverage, and for increasing enrollment, in place of the current coverage rules.
Like the House American Health Care Act bill, the new Senate draft is designed to get through the Senate using a special budget measure process.
Republicans hold 52 seats in the Senate.
Under traditional Senate rules, an ordinary bill needs 60 votes to get through the Senate.
A budget bill can get through the Senate with 51 votes.
One challenge for Republicans hoping to use the “budget reconciliation” process is that the Senate parliamentarian, a Senate aide, has the authority to decide which provisions in the bill are germane to the budget.
One challenge for Democrats who want to rely on Senate budget reconciliation rules and other procedural rules to block Affordable Care Act exchange legislation is that it’s no clear how firm the traditional Senate rules are. Sen. Ted Cruz, R-Texas, and others have suggested that Republicans might have an easy time changing or ignoring the procedural rules, if they choose to do so.
Affordable Care Act Repeal
The Senate Better Care draft would not actually repeal either of the two acts that make up the Affordable Care Act statutory package: the Patient Protection and Affordable Care Act of 2010, or the health-related provisions in PPACA’s sister bill, the Health Care and Education Reconciliation Act of 2010.
The draft would leave many major provisions of the ACA in place, including the summary of benefits and coverage requirements, the claim determination appeals rules, major Medicare reimbursement system provisions, the provision requiring plans that provide dependent benefits to let parents keep children on their coverage up until age 26, and provisions that are supposed to increase the supply of health care providers.
— Read Republicans Offer Two ACA Risk Corridors Paths on ThinkAdvisor