Washington’s Best Kept Secret Revealed: What’s in the Senate Health Care Bill

• Creates tax credits for the purchase of health insurance on exchanges or in the individual market, which vary based on income and age.  These credits are available for those making up to 350% of the Federal Poverty Level (FPL);
• Eliminates insurance mandates;
• Expands upon the state innovation waivers in Section 1332 of the Affordable Care Act by giving states greater flexibility to seek waivers, including waivers for the requirement that all insurance plans cover “essential health benefits;”
• Eliminates financing for the Medicaid expansion over a multi-year period and fundamentally alters the federal funding construct of the Medicaid program; and
• Repeals a number of the taxes that were included in the Affordable Care Act (ACA), including the Cadillac tax, the tax on prescription medication, the medical device excise tax, and the health insurance tax.

While the Congressional Budget Office and Joint Tax Committee have yet to release their assessments of the bill, it’s safe to say these changes, if implemented, will have a significant impact on the American health care system.

The Future of the Individual Market

One of the hallmarks of the ACA was the establishment of a federal and some state-based marketplaces (known as exchanges) where individuals without employer-based insurance or other types of coverage (e.g., Medicare or Medicaid) could purchase insurance. To help individuals afford health care insurance, the ACA established income- and geographically-based tax credits for individuals with income up to 400 percent of the federal poverty level (FPL).

The BCRA would:

• Limit eligibility for tax credits to those with incomes at or below 350% of FPL;
• Adjust the tax credits so that they are based on both the age and income of the recipient; and
• Cap the tax credits at a lower percent of overall medical costs than under current law.

Many analysts believe that the practical effect of these reforms would be to increase the cost of insurance premiums and deductibles for individuals who use tax credits to purchase health care coverage through the exchanges.

The BCRA also provides $85 billion to help low-income individuals afford their health insurance premiums and out-of-pocket medical expenses. The additional funding will help offset the cost of coverage; however, it is not clear that the additional funds will offset the full cost of what will be needed to ensure that low-income individuals can afford health coverage. The Congressional Budget Office and the Joint Tax Committee’s analysis of the BCRA, which is reportedly due as early as Monday, will provide their projections on the practical effects that the proposed tax credits and funding for premiums and out-of-pocket expenses will have in keeping health insurance affordable and/or affecting the number of people who could lose coverage.
 

The Future of the Obamacare Mandates

The ACA mandated, with limited exceptions, that all individuals purchase health insurance meeting certain standards. If an individual fails to purchase health care coverage, they are subject to a tax penalty. Larger companies also are required to provide affordable insurance to their employees or face penalties.

The BCRA eliminates the penalties for the individual and employer mandates for health care coverage, essentially making the mandates meaningless. While many employers will likely continue to provide health care coverage to their employees, some employers will opt to provide less comprehensive (i.e., less costly) coverage. Additionally many younger and healthier individuals may choose to forgo purchasing insurance on the individual market.

The Future of “Essential Health Benefits”

To ensure all insurance plans provide a baseline level of coverage, the ACA requires that plans, offered on the marketplaces and individual markets cover certain “essential health benefits” (or EHBs): outpatient services, emergency services, hospitalization, mental health and substance abuse disorders and behavior health treatment, maternity and newborn care, prescription drugs, rehabilitative devices, laboratory services, preventive and wellness services, and pediatric services, including oral and vision care. The BCRA permits states to obtain waivers to waive EHB requirements. As a result, the types of mandated services covered by insurance plans will vary by state.  Interestingly, the Senate bill also includes $2 billion to help facilitate the use of these waivers.

In response to the ongoing opioid crisis, the BCRA provides $2 billion for grants to states for treatment for substance abuse and mental health disorders for those states who opt to provide these services. 

The Future of Medicaid

One of the largest drivers in the decrease in the number of uninsured Americans under the ACA was the expansion of Medicaid to include individuals with income up to 138 percent FPL. While only 32 states opted to expand coverage through Medicaid, nearly 11 million individuals obtained insurance coverage through Medicaid expansion.

Beginning in 2020, Medicaid expansion states would be prohibited from enrolling new enrollees in Medicaid expansion under the legislation. The BCRA will begin to phase-out payments for the Medicaid expansion population in states starting in 2021, with full repeal of payments occurring in 2024. Meanwhile, individuals in at least seven states (Arkansas, Illinois, Indiana, Michigan, New Hampshire, New Mexico, and Washington) will lose coverage in 2021, as these states tied Medicaid expansion to continued provision of federal assistance at the levels established under the ACA. Low-income individuals who obtained coverage through Medicaid expansion will be eligible to purchase insurance with tax credits through the exchanges, though for many, such insurance may be cost-prohibitive.

In addition to eliminating the Medicaid expansion, the BCRA (similar to the American Health Care Act that the House passed in May) shifts Medicaid from an open-ended funding or entitlement system to a funding system based on per capita payments. Under the new system, states would receive federal funding on a capped, per enrollee basis, based on each state’s historical Medicaid spending. States also would have the option to receive the funding in a yearly block grant. The net effect of both options is to reduce the level of federal funding that is provided to states to support their Medicaid program.

Beginning in 2025, the BCRA also changes the inflationary index tied to Medicaid funding from the current medical inflationary index to the general Consumer Price Index for all urban consumers (CPI-U). Because health care costs tend to increase faster than general inflationary costs, this change will dramatically slow the level of federal funding that is provided to states to support their Medicaid programs. The reduction in federal Medicaid funding may lead to states further cutting eligibility and benefits provided under the program for low-income adults and children, the elderly, and the disabled.

The BCRA also permits states to establish work requirements for non-disabled adults over the age of 19 in exchange for Medicaid coverage.

The Congressional Budget Office and Joint Tax Committee estimate of the bill will include a projection of savings in federal spending in the Medicaid program and outline how much states will lose in Medicaid funding.

Other Changes

In addition to the changes described above, the BCRA:

• Eliminates federal funding for Planned Parenthood for one year and prohibits the use of certain tax credits for health insurance plans offered in the marketplace that provide abortion services;
• Dedicates funding for state high-risk pools; and
• Guarantees insurance cost sharing payments to insurance companies in the insurance exchanges through 2019.

Conclusion

While it remains unclear whether the Senate will have enough votes to pass their health care bill, if the legislation eventually becomes law, health providers will need to prepare for the coming changes. These changes will likely result in reductions to coverage levels, as well as less robust insurance plans that may cover fewer services at higher costs to patients.

Some changes will be dependent upon the actions taken by the states. Providers will need to carefully monitor whether states have requested waivers for EHBs or other ACA requirements.  Providers also will need to monitor whether states are implementing more robust state regulatory requirements in place of the federal requirements and determine how their patients may be affected. The Congressional Budget Office and Joint Tax Committee estimate of the cost and practical effects of the legislation will provide an additional window into the implications of the Senate’s proposals on the industry.

Arent Fox’s Health Care and Government Relations groups regularly counsel health care providers regarding developments in health care legislation and reform and other regulatory matters that affect the health care industry. If you have any questions, please contact Hillary M. Stemple, Linda A. Baumann or Stephanie Trunk in our Health Care group or the Arent Fox professional who usually handles your matters.