The U.S. House of Representatives narrowly passed the American Health Care Act (“AHCA”) on Thursday, May 4 by a 217-213 vote. The bill, which has been amended several times since initially introduced by House Republicans in March, is intended to repeal and replace key portions of the Affordable Care Act (“ACA”).
The AHCA, As Passed by the House
The final House bill combines the original AHCA proposal with the subsequent amendments. Among other things, the final House bill would:
- Phase out the ACA’s Medicaid expansion and impose “per capita” caps or block grants on Medicaid going forward;
- Allow states to impose a work requirement for able-bodied adult Medicaid recipients;
- Reduce the ACA’s individual and employer shared responsibility penalties to $0 effective retroactively to 2016;
- Repeal the ACA’s Marketplace cost-sharing reduction payments;
- Create a $138 billion Patient and State Stability Fund for states to use for reinsurance and other purposes
- Change the ACA’s premium age ratios from 3:1 to 5:1 in the individual and small group markets (state waivers available, as discussed below)
- Change the ACA’s Marketplace premium tax credits to allow them to be used off-Marketplace and, after 2020, replace them with new fixed-dollar, age-based tax credits for those who purchase individual health insurance
- Impose a 30% premium surcharge for up to 12 months on enrollees who fail to maintain continuous health coverage for more than 63 days (state waivers available, as discussed below);
- Liberalize existing rules for HSAs;
- Delay the “Cadillac tax” on high cost health coverage to 2026;
- Repeal the ACA’s prohibition on reimbursing over-the-counter medications from HSAs, FSAs, and HRAs;
- Repeal the ACA’s $2,500 annual limit on FSA contributions;
- Repeal the ACA’s increase on the medical expense income tax deduction; and
- Repeal various ACA taxes, including the unearned income tax and additional Medicare tax for high wage earners, the branded prescription drug tax, the health insurance provider tax, the medical device excise tax, and the so-called tanning tax.
New State Waivers Available Under MacArthur Amendment
The final House bill also provides for three new state waiver options as a result of an amendment introduced by Representative Tom MacArthur (R-NJ) in late April. In order to obtain a waiver, a state must, among other things, demonstrate how the waiver would either reduce premiums, increase enrollment, stabilize the market, stabilize premiums for individuals with pre-existing conditions, or increase the choice of health plans in that state.
- Essential Health Benefits Waiver. States could apply for a waiver from the ACA’s “essential health benefits” requirement beginning in 2020 and instead specify their own minimum benefit requirements. This would allow states to define the categories of benefits that would have be covered by insurers in that state, as well as the specific benefits required to be covered in each category.
- Age-Rating Waiver. States could apply for a waiver to impose premium age ratio of greater than the 5:1 ratio otherwise imposed under the AHCA in the individual and small group markets beginning in 2018. States obtaining this waiver would effectively allow insurers in charge older enrollees more than five times what it charges younger enrollees for the same health coverage.
- Community Rating Waiver. As an alternative to the 30% premium surcharge otherwise imposed under the AHCA on individuals who fail to maintain continuous health coverage, beginning in 2019, states could apply for a waiver from the ACA community rating requirements that otherwise prohibit insurers from considering health status in developing premium rates. States obtaining this waiver would allow insurers to engage in health status underwriting, but only for enrollees who fail to maintain continuous coverage for more than 63 days and only for a period of 12 months. In order to obtain a community rating waiver, a state must also have established a high-risk pool or reinsurance program, or participate in a newly-created federal risk-sharing program. The waivers would not permit insurers to rate based on gender or exclude individuals with pre-existing conditions.
The so-called “Upton Amendment” introduced by Representative Fred Upton (R-MI) on May 3 creates an $8 billion fund for states that are granted community rating waivers. The funds are to be used to provide assistance to reduce premiums or other out-of-pocket costs for individuals who are subject to increased premiums as a result of the state waiver.
What Wouldn’t Change under the AHCA?
The AHCA, as passed by the House, would not change any of the following:
- The income tax exclusion for employer-provided health benefits;
- The ACA reporting requirements (IRS Forms 1094/1095). However, beginning in 2020, employers would report offers of coverage on Form W-2, so the IRS could stop enforcing the existing reporting requirements; and
- Many of the ACA’s insurance market reforms, including the guaranteed availability and guaranteed renewability requirements, the requirement to offer dependent coverage to age 26, annual out-of-pocket maximums, and the prohibition on annual and lifetime limits.
The bill now moves on to the Senate, where its future is far from certain. Senate Republicans can only afford to lose two Republican votes in order to pass the legislation, and several Senate Republicans have been critical of certain aspects of the bill. Further, because the AHCA is a reconciliation bill, only measures that have significant impact on the federal budget will be able to pass without any Democratic support, per the Senate’s parliamentary rules. Some have questioned whether all of the provisions in the House bill have the required fiscal impact to pass the Senate by reconciliation.
If the Senate ultimately passes a different version of the bill, which appears more than likely at this point, the bill will then go to a conference committee where the two chambers will attempt to negotiate a final bill.
Clearly, the AHCA still has a long way to go before it becomes law. We will continue to monitor the bill as it moves through the Senate and will alert you of developments as they occur.
Please contact us today with any questions.
The materials and information contained in this content represent the opinions of Alltrust Insurance, Inc. and are for informational purposes only, not for the purpose of providing legal advice. The opinions expressed in this communication are made based on currently available information and are subject to change at any time. For advice about a specific legal question or situation in your organization, Alltrust Insurance, Inc. recommends you contact legal counsel of your choice.