The American Health Care Act – A Side-by-Side Comparison to Existing Law

Mar 21, 2017

As reported in our January 23, 2017 Clients & Friends Memorandum entitled “Status of the Affordable Care Act Repeal Efforts,”1 on January 12 and 13, 2017, the Republican-controlled Congress took the first step toward repealing certain provisions of the Patient Protection and Affordable Care Act (“ACA”) (Public Law 111-148) by adopting a fiscal budget resolution containing a “reconciliation directive” to House and Senate committees to prepare ACA repeal legislation by January 27, 2017.2  In addition, one of President Donald Trump’s first actions upon taking office was to implement an Executive Order stating an intent to repeal the ACA and directing Congress “to minimize the unwarranted economic and regulatory burdens of the [ACA] and . . . to afford the States more flexibility and control to create a more free and open healthcare market.”3

On March 6, 2017, the House Committees on Ways and Means and Energy and Commerce proposed the American Health Care Act (“AHCA”) pursuant to the budget-resolution process.  As previously discussed, the budget-reconciliation process allows Congress to repeal provisions of the ACA that directly impact government taxes and revenue and only requires a simple majority vote.  A full repeal of the ACA, and any comprehensive replacement legislation involving provisions that extend beyond tax and revenue, would require 60 votes in the Senate, necessitating Democratic support.4  Set forth below under “Next Steps” is a discussion of the applicable procedural requirements for the AHCA to become law.

Summary of Key Changes

The following is a summary comparing the significant changes the AHCA would effect to current law:

MEDICAID & OTHER GOVERNMENT FUNDING PROGRAMS

Provision

The ACA/Current Law

Proposed Law

Medicaid Expansion & Safety Net Funding

The ACA expanded Medicaid coverage to individuals under 65 with incomes up to 133% of the Federal poverty level who were previously ineligible for Medicaid and provided funding for such coverage.  Several states chose not to expand their Medicaid programs.

Would allow States that elected to expand Medicaid to continue receiving Federal funding, which will be phased out by 2020.5  Would provide $10 billion over the 2018-2022 period to States that elect not to expand Medicaid.

Provision of Federal Funds to the States

The Federal government matches State funds.

Would provide block grants beginning in 2020 and impose a per capita-based cap.

Other Funding Sources

Established Prevention and Public Health Fund6 to provide grants to the States to aid in prevention and public health, including community and clinical prevention initiatives, research, surveillance and tracking, public health infrastructure, immunizations, screenings, tobacco prevention and public health workforce and training.

Would repeal Prevention and Public Health Fund in 2018.  Would establish Patient and State Stability Fund to provide funds to the States to assist high-risk individuals who do not have access to health insurance enroll in coverage, promote access to preventive services and reduce out-of-pocket costs.

Eligibility of Aliens

Certain lawful immigrants are eligible to receive Medicaid.

Would deny Medicaid benefits to individuals who lack proof of U.S. citizenship.

Frequency of Eligibility Determinations

Eligibility re-determinations conducted annually.

Would require the re-determinations every six months.

Retroactive Eligibility

Allows for retroactive coverage after enrollment for up to 90 days

Would limit this “grace period” to only the month in which application is made beginning October 1, 2017.

Allowable Home Equity Limits

Grants States the option to expand the limit on the amount of home equity a Medicaid applicant can shield from reporting for disqualification from Medicaid eligibility for nursing home services.

Would repeal this provision effective 180 days after enactment.

Other Restrictive Provisions

 

Would allow States to disenroll certain lottery winners.

INDIVIDUALS[7]

Provision

The ACA/Current Law

Proposed Law

Individual Mandate

The ACA requires individuals to pay penalties for failure to maintain health insurance.

Would repeal the penalties effective immediately, but would increase the monthly premium rate by 30% for those who do not maintain continuous health-coverage beginning in 2019.

Health Savings Accounts

For individuals with a high-deductible plan, the ACA caps contributions to a tax-free health savings account.

Contributions are still capped, but the AHCA would increase the annual limit on health savings account contributions in 2018.  An individual could now choose to pay up to $6,550 in deductibles in 2018, up from $3,400 in 2017, and a family can pay $13,100 in 2018, up from $6,750 in 2017.

Medical Expense Deduction

Medical expenses, to the extent that the expenses exceed 10% of the taxpayers’ adjusted gross income (“AGI”), are allowable itemized deductions.

Would lower the medical expense deduction to 7.5% of taxpayers’ AGI.

Dependent Child Coverage until 26

Allows children under 26 years old to remain covered under their parents’ insurance.

Would retain this provision.

Pre-Existing Condition Exclusion

Prohibits insurers and group health plans from denying insurance to individuals with pre-existing health conditions.

Would retain this provision.

Ban on Annual and Lifetime Coverage Caps

Prohibits any health plan from establishing lifetime limits on the dollar value of benefits for any individual exceeding certain thresholds.

Would retain this provision.

Premium Subsidies

Provides subsidies for individuals meeting income threshold to buy insurance in the Marketplace.

Would repeal the subsidies in 2020.

Tax Credits

Provides tax credits to help people pay deductibles and make co-payments when purchasing Exchange plans in the Marketplace.

Would repeal the tax credits starting 2020 and replace with income and age-based tax credits ranging from $2,000 for a person under 30 to $4,000 for a person over 60, which they can use when purchasing either Exchange plans in the Marketplace or private plans.

Repayment of Excess Health Insurance Coverage Credit

Individuals who receive excess tax credits must repay the excess amounts subject to a cap for individuals with incomes under 400% of the Federal poverty level.

Would remove the income-related caps applicable to excess credit repayments for 2018 and 2019.

Tax on Net Investment

Imposes a tax on net investment income for persons earning over $200,000 or families earning over $250,000 beginning in 2013.

Would repeal the tax starting 2018.

Use of Flexible Spending Accounts to Purchase Over-the-Counter Medications

Cost of over-the-counter medications cannot be reimbursed on a pre-tax or tax-favored tax basis.

Would repeal the prohibition in 2018.

Repeal of Medicare Tax Increase

The ACA imposes a 0.9-percent increase in the Medicare payroll tax for individuals who meet certain income thresholds.

Would repeal in 2018.

Coverage for Abortion Services

Private insurance carriers may offer plans in the Marketplace that cover abortion services provided the plans comply with the requirement to segregate Federal funds.  At least one plan within a State Marketplace must not cover abortions beyond those permitted by Federal law (to save the life of the woman and in cases of rape and incest).  Abortion coverage cannot be required as part of the Federally-established essential health benefits package.  States can prohibit coverage for abortions by all plans in their State Marketplace.

Would retain ACA provisions but limit the use of tax credits to purchase insurance that covers abortion services.  Any insurance plan, private or Exchange in the Marketplace, that covers abortion, will not be eligible for tax credits, unless the pregnancy is the result of rape or incest.

EMPLOYERS

Provision

The ACA/Current Law

Proposed Law

Employer Mandate

The ACA requires employers to pay an assessable payment for failure to provide health insurance that is affordable and provides minimum value.

Would repeal the penalties immediately.

Cadillac Tax

The ACA imposes a 40 percent excise tax on employer plans exceeding $10,200 in premiums per year for individuals and $27,500 for families beginning in tax years after December 31, 2019.  The thresholds would have been updated when the tax went into effect in 2020, and adjusted for inflation in years thereafter.

Would delay the effective date until 2025.

Reporting Requirements

Requires employers to file IRS Forms 1094 and 1095 and to report the total cost of employer-sponsored coverage on each employee’s IRS Form W-2.

Would retain the reporting requirements and add additional requirement to specify each month in which the employee was eligible for group coverage in a W-2.

Small Business Tax Credit

Provides a credit to small businesses wishing to provide their employees insurance.

Would repeal the tax credit in 2020.

INSURERS

Provision

The ACA/Current Law

Proposed Law

“Tiered” Classification of Plans

Exchange plans in the Marketplace are classified by tiers (“Bronze, Silver, Gold, and Platinum”) according to health benefits, actuarial value and pricing.

Would repeal the tiered designations and allow insurers participating in the Exchange Marketplace to offer a variety of different plans.

Essential Health Benefits

Identified “essential health benefits” all Marketplace plans had to provide.

The essential health benefits requirement would sunset in 2020 for all Exchange plans in the Marketplace.8  States could still decide to make certain health benefits a requirement under State law.

Variation of Health Insurance Premium Rates

Insurers may charge people over 60 no more than 3 times what they charge people under 30 (a 3:1 ratio).

Would change the permissible health insurance premium rate ratio to 5:1.

Limitation for officer and director health insurance

Imposes a cap on tax deductions for health insurance providers that paid over $500,000 to an officer, director, or employee.

Would repeal the cap in 2018.

Insurer Reporting Requirement

Requires certain insurers to report the net premiums written for health insurance of United States health risks to the IRS on Form 8963.

Would repeal penalties for non-reporting in 2018.

PROVIDERS

Provision

The ACA/Current Law

Proposed Law

Allotments for Disproportionate Share Hospitals

The ACA would reduce Medicaid allotments to States for hospitals that disproportionately serve uninsured people from 2018-2025.

Would eliminate those cuts for States that have not expanded Medicaid under the ACA in 2018 and all other States in 2020.


Hospital Acquired Conditions

The ACA adjusted government payments to lowest performing hospitals with respect to risk-adjusted hospital acquired condition quality measures.

Would retain this provision.

Planned Parenthood

The charity currently receives more than $500 million annually from the Federal government.

Would defund this organization for the 1-year period immediately after enactment.

MEDICAL DEVICE MANUFACTURERS

Provision

The ACA/Current Law

Proposed Law

Medical Device Excise Tax

Imposes a 2.3 percent medical device excise tax on the sale of certain medical devices by the manufacturer or importer.

Would repeal the tax in 2018.


Next Steps

On March 13, 2017, the Congressional Budget Office (“CBO”) and the staff of the Joint Committee on Taxation released an estimate of the budgetary effects of the AHCA.9  The CBO estimated that the AHCA will save $337 billion dollars over the 2017 to 2026 period and result in lower deficits, reduced Federal spending and tax cuts.  The report concluded that the health insurance market would remain stable because other provisions of the bill would lower premiums “enough to attract a sufficient number of relatively healthy people to stabilize the market.”  The report determined that average premiums would be initially higher by 15 to 20% but thereafter drop around 10% by 2026.  The report estimates that in 2020, 21 million more non-elderly people would be without health insurance and that this number will increase to 24 million people by 2026 to 52 million people.

The AHCA has been approved by the Ways and Means Committee and the House Energy and Commerce Committee.10  On March 16, 2017, the Budget Committee likewise voted to approve the AHCA after recommending some amendments for the Rules Committee to consider.11  The Rules Committee will consider amendments by the Budget Committee and other party leaders before a full House vote.12  President Trump has also proposed amending the AHCA before the House vote via a Manager’s Amendment.13  After House approval, the AHCA would need to be approved by a simple majority of the Senate, at least 51%, before it is presented to the President for signing.

We will continue to monitor the progress of the AHCA and will report on material developments.

 

1   http://www.cadwalader.com/resources/clients-friends-memos/status-of-the-affordable-care-act-repeal-efforts.

2   https://www.congress.gov/115/bills/sconres3/BILLS-115sconres3es.pdf.

3   https://www.whitehouse.gov/the-press-office/2017/01/2/executive-order-minimizing-economic-burden-patient-protection-and.

4   2 U.S.C. § 644.

5   See discussion in row entitled “Allotments for Disproportionate Share Hospitals” in “Providers” section below.

6   https://www.hhs.gov/open/prevention/.

7   This section does not address effects of proposed changes in Medicaid reimbursement and other payment changes on individuals, including the increase in rates insurers may charge individuals over 60 set forth under “Variation of Health Insurance Premium Rates” in the Insurers section below.

8   Although the requirement that private plans maintain essential health benefits would remain, as noted in the “Employers” section above, the AHCA would repeal penalties for failure to provide essential health benefits.

9   https://www.cbo.gov/publication/52486.

10  https://waysandmeans.house.gov/ways-means-republicans-take-historic-action-repeal-obamacare-ensure-americans-access-affordable-care/; https://energycommerce.house.gov/news-center/press-releases/energy-and-commerce-committee-advances-legislation-repeal-and-replace.

11  http://budget.house.gov/news/documentsingle.aspx?DocumentID=394574.

12  http://www.businessinsider.com/house-budget-committee-trumpcare-ahca-vote-2017-3; https://www.theguardian.com/us-news/2017/mar/09/republican-healthcare-plan-house-approvals-obamacare; http://www.ajmc.com/newsroom/hhs-secretary-tom-price-responds-to-ahca-questions-and-concerns-during-town-hall; https://www.washingtonpost.com/graphics/politics/obamacare-replacement-next-steps/.

13  http://www.reuters.com/article/us-usa-obamacare-amendment-idUSKBN16L2FS?il=0.

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