Tag: ACA

Affordable Care Act Proposed Rule Would Broaden Access to Over-the-Counter Contraception Without Cost Sharing

Employer-sponsored health plans would be required to cover over-the-counter contraception, including condoms and emergency contraception, without a prescription and without cost sharing under newly proposed Affordable Care Act (ACA) regulations

Quick Hits

  • Proposed rules issued by the DOL, HHS, and Treasury are designed to increase coverage for over-the-counter contraceptives, such as condoms, spermicides, and emergency contraception, without a prescription.
  • If finalized, the proposed rules would be the first time that male contraceptives will be covered under the ACA preventive care requirements.
  • The public has until December 27, 2024, to submit comments on the proposed rules.

Fully insured and self-insured health plans would have to cover every Food and Drug Administration (FDA)-approved contraceptive drug or drug-led combination product without cost sharing, unless the plan or insurer covers a therapeutic equivalent without cost sharing, under rules proposed by the U.S. Departments of Health and Human Services, Labor, and Treasury.

Employer-sponsored health plans and insurers also would have to tell participants that over-the-counter contraception without a prescription is covered at no cost, under the proposed rules published October 28, 2024, in the Federal Register.

The ACA requires most group health plans to cover preventive care at no cost to patients. Preventive care under the ACA includes FDA-approved contraceptives for women, such as birth control pills, injectable contraceptives, contraceptive patches, implantable rods, intrauterine devices, diaphragms, sponges, vaginal rings, emergency contraception medication, and sterilization procedures for women. In 2022, the Health Resources and Services Administration (HRSA) issued updated guidelines that define which healthcare services are considered preventive for women.

Without a prescription, over-the-counter products were not included in the ACA’s coverage requirement. The proposed rule would change that.

In guidance issued earlier this year, the departments noted that they are still identifying plans that are out of compliance with the contraceptive care requirements. Employers that violate the ACA mandate can be fined $100 for each day in the noncompliance period for each affected employee. At first, the ACA granted exemptions to churches and other religious organizations that hold instilling religious values as their purpose and primarily employ people who share their religious beliefs. The criteria to qualify for an exemption were broadened later. Without an exemption, nongovernmental employers can use a self-certification form to instruct their health insurer to exclude contraceptive coverage from the group health plan and provide payments to patients for contraceptive services separate from the health plan.

In July 2020, the Supreme Court of the United States ruled that private employers with religious or moral objections can be exempt from the contraceptive mandate.

Seven states—California, Colorado, Maryland, New Jersey, New Mexico, New York, and Washington—already have laws requiring state-regulated health insurance policies to cover certain over-the-counter contraceptives without a prescription and without cost sharing.

Next Steps

Employers may want to review the coverage of contraceptives under their medical plans both to ensure that no improper restrictions are put on them currently and also to clarify how their coverage would need to expand if these proposed rules became final in a substantially similar form.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more news on ACA OTC Contraception Regulations, visit the NLR Health Law & Managed Care section.

SCOTUS Favors Employers’ Religious Liberties Over Employee Rights

The Supreme Court of the United States (SCOTUS) issued two important decisions this week in cases reflecting the ongoing legal tensions between employers’ religious liberties and the right of employees to be free from discrimination; and in both cases, SCOTUS tipped the scales decidedly in favor of employers’ religious liberties.

First Amendment Supersedes Employment Discrimination Claims

The Supreme Court issued a decision in two similar cases – essentially dismissing the discrimination claims brought by two Catholic school teachers who were discharged from their instructional positions at two different Catholic schools in southern California. In Our Lady of Guadalupe School v. Morrissey-Berru (19-267), and St. James School v. Biel (19-348), the Supreme Court held by a 7-2 majority that the U.S. Constitution’s First Amendment Religion Clauses foreclose the teachers’ employment discrimination claims. In the OLG case, the former teacher sued for age discrimination; in the St. James case, the teacher was dismissed after she sought a leave of absence for cancer treatment. The teacher later passed away.

Relying on the “ministerial exception” outlined in the 2012 SCOTUS decision in Hosanna-Tabor Evangelical Lutheran Church v. EEOC, 565 U.S. 171 (2012), the majority opinion, authored by Justice Samuel Alito, noted that “religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.”

Justice Sonia Sotomayor, joined by Justice Ruth Bader Ginsburg in dissent, criticizes the majority for its distillation of the Hosanna-Tabor standard into “a single consideration: whether a church thinks its employees play an important religious role,” and observes that it “strips thousands of schoolteachers of their legal protections.”

Religious Exemptions From Birth Control Mandate Under the Affordable Care Act

In a similar but procedurally more complicated ruling, the Supreme Court upheld the federal government’s expansion of a federal rule that exempts employers with religious or moral objections from being required to provide employees with health insurance coverage for birth control under the Affordable Care Act (ACA).

In a 7-2 decision in Little Sisters of the Poor v. Pennsylvania (19-431), SCOTUS tackled the latest skirmish of the ACA’s birth-control mandate. The ACA mandate generally requires employers to provide female employees health insurance with access to contraception. Religious entities have repeatedly challenged the rules, as well as the opt-out accommodation process developed under the Obama administration for employers with religious or moral exemptions.  (The Trump administration had expanded those exemptions.)

With the majority opinion authored by Justice Clarence Thomas, SCOTUS held that the departments of Health and Human Services, Labor, and the Treasury had authority to issue rules for employers. In a concurring opinion, Justice Elena Kagan (joined by Justice Stephen Breyer) acknowledges the statutory authority of the federal agencies, but cautions, “that does not mean the Departments should prevail when these cases return to the lower courts. The States challenged the exemptions not only as outside the HRSA’s [Health Resources and Services Administration’s] statutory authority, but also as ‘arbitrary [and] capricious.’”

In her dissenting opinion, Justice Ginsburg (joined by Justice Sotomayor) notes, “Today, for the first time, the Court casts totally aside countervailing rights and interests in its zeal to secure religious rights to the nth degree.”

Takeaways for Discerning Employers

While these Supreme Court decisions, in tandem, may bolster employers’ confidence in their sincerely held beliefs and moral objections about certain employment-related decisions, it is also important to recognize its limitations.  Employers should strategize with their leadership and legal counsel to carefully weigh whether and to what extent these decisions should (or will) inform their own policies and practices, as well as any resulting reputational impact and workplace morale considerations.

© 2020 BARNES & THORNBURG LLP

For more recent SCOTUS employment decisions, see the National Law Review Labor & Employment law section.

Third Circuit Upholds Decision Blocking Trump Administration’s Birth Control Rules

OVERVIEW

A Third Circuit appeals panel upheld the lower court ruling in Commonwealth of Pennsylvania v. President United States of America et al. No. 17-3752. This ruling grants a nationwide preliminary injunction against the religious and moral exemptions for employers to the ACA’s birth control mandate, so employers may want to take a cautious approach toward limiting contraceptive coverage.

IN DEPTH

A Third Circuit appeals panel upheld the lower court ruling in Commonwealth of Pennsylvania v. President United States of America et al. No. 17-3752, a ruling granting a nationwide preliminary injunction against the religious and moral exemptions for employers to the ACA’s birth control mandate. The decision was passed down in January by a Pennsylvania federal judge, and follows a sequence of similar appeals cases brought in the Ninth Circuit.

In an opinion written by Circuit Judge Patty Shwartz, the panel found that the plaintiffs had proved particularized injury—rejecting the Trump Administration’s argument that the states lacked standing. The panel found there was evidence in the record showing the exemptions would result in increased spending of state-funded services either from women who have lost coverage or states bearing the costs of unintended pregnancies. This holding goes farther than the recent Ninth Circuit decision in The Little Sisters of the Poor Jeanne Jugan Residence v. California, et al. No. 18-1192, which limited injunction to the select states that brought the litigation because there was not a sufficient showing of economic injury.

The appeals panel ruled it was necessary to halt the implementation of the rules until it has been decided whether or not the agencies responsible for the rules—the Departments of Health and Human Services, Treasury and Labor—followed the Administrative Procedure Act. The panel was not convinced by either argument presented: that there was good cause sufficient to avoid notice and comment or that the Religious Freedom Restoration Act required a religious exemption.

Whether any appeal to the Supreme Court is in progress has yet to be determined. Accordingly, employers may want to take a cautious approach toward limiting contraceptive coverage.

© 2019 McDermott Will & Emery
Article by Judith Wethall of McDermott Will & Emery. Teal Trujillo, a summer associate in our Chicago office, also contributed to this On the Subject.
For more in healthcare regulation, see the National Law Review Health Law & Managed Care page.

U.S. District Court Upholds Short-Term Limited Duration Insurance Rule

The U.S. District Court for the District of Columbia upheld a rule that expanded the maximum length of time for short-term, limited duration insurance (STLDI).

STLDI is coverage that lasts a limited period of time and is exempt from many of the requirements that apply to plans in the individual health insurance market. Concerned that STLDI was drawing healthy lives away from the individual health insurance market that the Affordable Care Act (ACA) sought to support, the Obama administration shortened the length of time an individual could enroll in STLDI from 12 months to three months. Seeing STLDI as a low cost alternative to individual insurance, the Trump administration reversed course. Final regulations issued last year restored the period to 12 months and allowed for up to two renewals, for a total period of 36 months of coverage. One month later, seven organizations representing small health insurers, mental health patients and providers, and others brought suit challenging these regulations.

The court denied the challenge. It found that the ACA–and HIPAA, which first introduced STLDI–did not define the length of time STLDI could remain in effect and that the U.S. Departments of Treasury, Labor, and Health and Human Services could extend the length of time STLDI may remain available to enrollees without posing a threat to the ACA’s “structural core.”

The plaintiffs have already expressed their intent to appeal the decision. In the meantime, states continue to consider the question of whether and how to regulate the availability and terms of STLDI policies issued within their borders.

Copyright © by Ballard Spahr LLP
This article is by Edward I. Leeds  and Paige A. Haughton of Ballard Spahr LLP.
For more on health insurance, please see the National Law Review Health Law & Managed Care page.

A Momentary Victory for the ACA: Federal Judge Issues a Nationwide Injunction against Trump Administration’s Contraceptive Coverage Carve Outs

On January 14, 2019, US District Judge Wendy Beetlestone in the US District Court for the Eastern District of Pennsylvania issued a nationwide preliminary injunction blocking the Trump administration’s carveouts to the Affordable Care Act’s (ACA) contraceptive coverage mandate. One day prior, US District Judge Haywood Gilliam in the US District Court for the Northern District of California issued a more limited injunction blocking the same carve outs from taking effect in 13 states plus the District of Columbia.

On October 6, 2017, the Trump administration issued rules that are the subject of these two decisions. The rules would have allowed employers to raise religious and moral objections to avoid the ACA’s requirement that contraceptive coverage be provided without cost sharing under their group health plans. Under the ACA, certain contraceptive products and services are included in the list of preventive services that must be covered by most group health plans without cost sharing. The available exemptions to this rule were limited.

Judge Beetlestone reasoned that the loss of contraceptive coverage would have resulted in “significant” and “proprietary harm” to the states by causing increased use of state-funded contraceptive services, along with increased costs associated with unintended pregnancies. Without the preliminary injunction, the Trump administration’s rules would have gone into effect on January 14, 2019. The preliminary injunction does not permanently block the rules, but rather it stops the rules from going into effect while legal challenges are being pursued. Judge Beetlestone indicated that she is likely to invalidate the rules, stating that the US Departments of Health and Human Services, Labor and Treasury exceeded the scope of their authority under the ACA by issuing the carve outs.

Charnae Supplee, a law clerk in the Firm’s Washington, DC office, also contributed to this post. 

 

© 2019 McDermott Will & Emery
This post was written by Jacob Mattinson Judith Wethall and Charnae Supplee of McDermott Will & Emery.

Under Developing IRS Guidance (Not Final), an Employer Would Be Able to Fully Satisfy ACA’s Employer Mandate Without Maintaining Group Health Plan

Takeaway Message: A recent IRS notice provides a future path for employers to avoid ACA employer mandate penalties by reimbursing employees for a portion of the cost of individual insurance coverage through an employer-sponsored health reimbursement arrangement (HRA). While the notice is not binding and at this stage is essentially a discussion of relevant issues, it does represent a significant departure from the IRS’s current position that an employer can only avoid ACA employer mandate penalties by offering a major medical plan.

Background: As described in more detail in a previous update, the ACA currently prohibits (except in limited circumstances) an employer from maintaining an HRA that reimburses the cost of premiums for individual health insurance policies purchased by employees in the individual market. Proposed regulations issued by the IRS and other governmental agencies would eliminate this prohibition, allowing an HRA to reimburse the cost of premiums for individual health insurance policies (Individual Coverage HRA) provided that the employer satisfies certain conditions.

The preamble of the proposed regulations noted that the IRS would issue future guidance describing special rules that would permit employers who sponsor Individual Coverage HRAs to be in full compliance with the ACA’s employer mandate (described below). As follow up, the IRS recently issued Notice 2018-88 (the Notice), which is intended to begin the process of developing guidance on this issue.

On a high level, the ACA’s employer mandate imposes two requirements in order to avoid potential tax penalties: (1) offer health coverage to at least 95 percent of full-time employees (and dependents); and (2) offer “affordable” health coverage that provides “minimum value” to each full-time employee (the terms are defined by the ACA and are discussed further in these previous updates).

Offering Health Coverage to at Least 95 Percent of Full-Time Employees: Both the proposed regulations and Notice provide that an Individual Coverage HRA plan constitutes an employer-sponsored health plan for employer mandate purposes. As a result, the proposed regulations and Notice provide that an employer can satisfy the 95 percent offer-of-coverage test by making its full-time employees (and dependents) eligible for the Individual Coverage HRA plan.

Affordability: The Notice indicates that an employer can satisfy the affordability requirement if the employer contributes a sufficient amount of funds into each full-time employee’s Individual Coverage HRA account. Generally, the employer would have to contribute an amount into each Individual Coverage HRA account such that any remaining premium costs (for self-only coverage) that would have to be paid by the employee (after exhausting HRA funds) would not exceed 9.86 percent (for 2019, as adjusted) of the employee’s household income. Because employers are not likely to know the household income of their employees, the notice describes that employers would be able to apply the already-available affordability safe harbors (described in more detail here) to determine affordability as it relates to Individual Coverage HRAs. The Notice also describes new safe harbors for employers that are specific to Individual Coverage HRAs, intending to further reduce administrative burdens.

Minimum Value Requirement: The Notice explains that an Individual Coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

Next Steps: Nothing is finalized yet. Employers are not permitted to rely on the proposed regulations or the Notice at this time. The proposed regulations are aimed to take effect on January 1, 2020, if finalized in a timely matter. The final regulations will likely incorporate the special rules contemplated by the Notice (perhaps with even more detail). Stay tuned.

 

© 2019 Foley & Lardner LLP
This post was written by Jessica M. Simons and Nick J. Welle of Foley & Lardner LLP.

Following Repeal of the Individual Mandate, Twenty States Challenge the Affordable Care Act

On February 26, 2018, twenty states (the “Plaintiffs”) jointly filed a lawsuit[1] in the U.S. District Court for the Northern District of Texas requesting that the court strike down the Patient Protection and Affordable Care Act (“ACA”), as amended by the Tax Cuts and Jobs Act of 2017 (the “TCJA”), as unconstitutional. The Plaintiffs’ suit gained support from the White House last week, when Attorney General Jeff Sessions delivered a letter to House Speaker Paul Ryan on June 7, 2018 (the “Letter”), indicating that the Attorney General’s Office, with approval from President Trump, will not defend the constitutionality of the individual mandate – 26 U.S.C. 5000(A)(a) – and will argue that “certain provisions” of the ACA are inseverable from that provision.[2]The Letter indicates that this is “a rare case where the proper course is to forgo defense” of the individual mandate, reasoning that the Justice Department has declined to defend statutes in the past when the President has concluded that the statute is unconstitutional and clearly indicated that it should not be defended.

Acknowledging that such a position breaks from a longstanding tradition of defending the constitutionality of duly enacted legislation, the Letter offers support for both of the Plaintiffs’ main arguments: first, the Plaintiffs claim that the individual mandate is no longer constitutional, because individuals will no longer pay a penalty for being uninsured after December 31, 2018; second, if the individual mandate is unconstitutional, the ACA is also unconstitutional, because the ACA cannot continue to function without the individual mandate. These arguments are discussed in further detail below.

The Individual Mandate

The Plaintiffs argue that the individual mandate, which requires individuals to be insured under the ACA or pay a tax if uninsured, is no longer constitutional following passage of the TCJA. When the United States Supreme Court reviewed the constitutionality of the individual mandate in 2012, the Court determined that Congress could not direct people to buy insurance under the Commerce Clause or Necessary and Proper Clause, but requiring individuals to buy health insurance or pay a fee was a constitutional use of Congress’s taxing powers.[3]

The Plaintiffs argue that the individual mandate can no longer be considered a valid use of Congress’s taxing power, because the TCJA reduces the fee for being uninsured to $0 beginning January 1, 2019. Although the TCJA effectively eliminated the individual mandate’s tax provisions, the requirement for individuals to buy insurance remains unaffected. The Plaintiffs argue that the individual mandate cannot be interpreted as a tax, because it lacks the central feature of any tax – the ability to generate revenue for the government. The individual mandate, therefore, cannot be upheld as a use of Congress’s taxation powers, and the Supreme Court also determined that it could not be upheld under the Commerce Clause or the Necessary and Proper Clause. Absent a constitutional basis, the Plaintiffs argue that the individual mandate can no longer be upheld.

The ACA Without the Individual Mandate

The Plaintiffs go on to argue that, if the individual mandate is unconstitutional, so too is the entire ACA. Citing the ACA and the Supreme Court, the Plaintiffs claim that the individual mandate is essential to creating effective health insurance markets and, because it is so “closely intertwined” with the rest of the ACA, severing the individual mandate would cause the rest of the ACA to cease functioning.[4] The Plaintiffs assert several arguments in furtherance of the charge that the “unconstitutional individual mandate” and ACA significantly harm and impact State sovereignty:

  • The ACA imposes a “burdensome and unsustainable panoply of regulations” on markets that each State has sovereign responsibility to regulate, including requirements for States to offer health insurance exchanges and minimum coverage standards for health insurance products.[5] Forcing the Plaintiffs to comply with ACA rules and regulations harms the States in their sovereign capacity, because the States lose the ability to enact or enforce their own laws or policies that conflict with the ACA.

  • States are significantly harmed by ACA rules and regulations compelling them to take costly corrective actions to stabilize insurance markets. The Plaintiffs argue that ACA regulations of the individual insurance market caused insurers to pull out of State marketplaces due to unsustainable rising costs. This, in turn, leads to costs rising further, as less competition exists in the healthcare markets. To escape the cycle of rising costs, the Plaintiffs argue that the States have to expend significant sums of money to stabilize healthcare markets.

  • States are significantly harmed as Medicaid and Children’s Health Insurance Plan (CHIP) providers. The Plaintiffs argue that the individual mandate and the ACA caused millions of individuals to enroll in Medicaid and CHIP, either because the ACA expanded program eligibility or the individual mandate forced individuals to enroll in one of the programs if they could not afford to purchase insurance in the marketplace. The influx of new Medicaid and CHIP enrollees caused states to incur “significant monetary injuries,” because the States are obligated to “share the expenses of coverage with the federal government.”[6]

  • States are harmed in their capacity as large employers. The ACA requires States, as large employers, to offer health insurance plans to eligible employees. The plans must contain minimum essential benefits defined under the ACA. Additionally, the ACA imposes a 40% excise tax on high cost employer-sponsored health coverage.[7]To comply with these, and other, ACA requirements, States must expend significant amounts of money to provide health coverage to employees. Some states, including Wisconsin, restructured their employer-sponsored health insurance plans to avoid the ACA excise tax. Other states, including Missouri and South Dakota, have cut other parts of their budgets to account for increased employer-provided healthcare costs.

Based on the allegations discussed above, the Plaintiffs request that the District Court declare the ACA, as amended by the TCJA, to be unconstitutional either in part or in whole, declare unlawful all rules and regulations promulgated pursuant to the ACA, and enjoin the defendants from enforcing the ACA. A ruling in favor of the Plaintiffs could not only eliminate the requirement for individuals to purchase health insurance, but could disrupt or eliminate some or all of the healthcare programs and mandates established under the ACA.

While the litigation aims high, numerous legal scholars and stakeholders have blasted the merits of the DOJ’s latest intervention (or lack thereof). Republican Senator Lamar Alexander released a statement remarking that “[t]he Justice Department argument in the Texas case is as far-fetched as any I’ve ever heard.” Jonathan H. Adler, a law professor at Case Western Reserve University School of Law who helped develop the arguments against the ACA in prior litigation (most notably, King vs. Burwell), described the Department of Justice argument as “just absurd,” arguing that there “is no legal basis for applying severability doctrine in this way, and no precedent for the Justice Department to accept such an argument.” While the merits of the litigation appear to be dubious, it nonetheless represents a mortal threat to the ACA and its popular protections for pre-existing conditions. Over the coming months, we will observe how this plays out legally and politically.

[1] Complaint, Texas & Wisconsin, et al v. United States et al, (N.D. Tex. 2018) (No. 4:18-cv-00167-O).

[2] Jefferson Sessions, Re: Texas v. United States, NO. 4:18-cv-00167-O (N.D. Tex.), United States Office of the Attorney General, (June 7, 2018).

[3] Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 558, 574 (2012).

[4] 42 U.S.C. § 18091(2)(I); King v. Burwell, 135 S. Ct. 2480, 2487 (2015).

[5] Complaint at 16-17.

[6] Complaint at 22-23.

[7] 26 U.S.C. § 4980I.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

Senate Unveils Changes to the Better Care Reconciliation Act of 2017: Significant Changes, but Uncertainty Remains

On July 13th, the Senate released the updated version of the Better Care Reconciliation Act (BCRA) of 2017. While the new version makes some significant changes to the original Senate proposal, the major components of the original bill remain intact.

Will the Changes Result in Additional Support?

Securing the required votes to pass the revised BCRA will be very difficult, with two GOP Senators, Rand Paul (R-KY) and Susan Collins (R-ME) announcing soon after its release they cannot even support beginning debate on the measure, a key procedural Senate vote. Senator Paul believes the bill doesn’t go far enough to repeal the Affordable Care Act (ACA) while Collins believes the Medicaid cuts are far too deep.  Four other Republican Senators have publicly said they remain undecided and many moderates in the Caucus have not announced their position.

Currently, Senate Republican Leader Mitch McConnell (R-KY) plans to begin the procedural process to allow debate on the bill as early as next week, following an anticipated Congressional Budget Office score Monday of the new language and the possible addition of an amendment by Senator Ted Cruz (R-TX).  In an effort to appease more conservative Senators, the Cruz amendment would allow non-ACA compliant plans to exist alongside ACA compliant plans in the exchanges. However, that causes angst for many moderates who are concerned about the potential loss of assurances such as coverage for pre-existing conditions.  Similar to the dynamic that unfolded in the House, moderates and conservatives in the Senate are deeply divided and appeasing one group tends to aggravate the other.

The following are highlights of the changes in the most recent version of the BCRA:

Changes to the Medicaid Provisions

  • Allows CMS to increase federal contributions to states above the limits imposed by per capita caps or Medicaid block grant amounts, if the state, or a location within the state, has a declared public health emergency.
  • Modifies requirements for Medicaid block grants to allow them to be applied to the Medicaid expansion population, and to prohibit states from using unspent block grant funds for non-Medicaid services.
  • Would retain an ACA requirement for states to cover children up to age 19 with incomes below 133% of the federal poverty level.
  • Allows states to receive relief from reductions in allowable disproportionate share hospital (DSH) payments during the following quarter in 2018 or 2019 if the state terminates its Medicaid expansion, and modifies the formula by which non-expansion states can receive additional DSH allocations.
  • Would allow seniors and the disabled to have Medicaid cover services provided during the three months prior to enrollment, as in current law.  Other Medicaid beneficiaries would be limited to retroactive coverage during the month of enrollment.
  • Would allow states to apply for an aggregate of up to $8 billion in additional federally funded payments for home and community based services (HCBS) providers through a demonstration project.  The 15 states with the lowest density are given priority in applying for these demonstration project funds.
  • Would expand federal support for services provided to members of an Indian tribe by enrolled Medicaid providers that are not Indian Health Services facilities.

Insurance-Related Changes

  • Consumers will be permitted to use HSA funds to pay health insurance premiums for the first time.  This will allow consumers to use pre-tax dollars to pay for health insurance, and could reduce the financial incentives that have long supported employer-provided health insurance coverage.
  • The so-called “Cruz Amendment” has been included in the revised BCRA.  This amendment would permit insurers to sell individual health insurance policies that do not comply with the market reforms in the ACA, so long as the insurer also sells an ACA-compliant policy in the same state.
    • The non-ACA-compliant policies would be exempt from a number of popular market reforms, including:
      • Actuarial value requirements
      • Essential health benefits coverage
      • Limits on out-of-pocket expenses
      • Community rating
      • Guaranteed issuance of policies
      • Prohibition of pre-existing condition exclusions
      • Limitations on coverage waiting periods
      • No-copay preventive care coverage
      • Medical Loss Ratio requirements
    • Coverage under a non-ACA-compliant policy does not constitute creditable coverage, so persons moving from non-compliant policies to ACA-compliant policies will be subject to a 6-month waiting period.
    • Non-ACA-compliant policies are not included in the ACA’s risk adjustment program (42 U.S.C. §18063).

Other Notable Items

  • Substance use disorder treatment and recovery service funding is increased from $2 billion for one year to approximately $5 billion per year from 2018 through 2026.
  • Purchasers in the individual market will be able to buy catastrophic/lower-premium plans and still be eligible for tax credits.
  • While most of the Affordable Care Act tax repeals remain, this version does not repeal the net investment income tax, additional Medicare tax, and the limit on insurance company deductions for executive compensation.

As we continue to monitor the Senate debate on the BCRA, we will provide updates on the status of the Senate repeal and replace efforts.

This post was also written Nick Welle, Anil Shankar , Jennifer F. Walsh, Morgan J. Tilleman Marian E. Dodson of  Foley & Lardner LLP,

Better Care Reconciliation Act – Key Takeaways for Employers and Plan Sponsors

On June 22, 2017, the Senate released its much anticipated health care reform legislation – the Better Care Reconciliation Act (“BCRA”) (linked to amended version released June 26, 2017). In many respects the BCRA is similar to the House of Representatives’ American Health Care Act (which was described in our March 9, 2017 and May 4, 2017 blog entries). However, the BCRA differs from the AHCA in several important respects.

As of the date of this blog entry, the BCRA does not have sufficient support to pass a vote in the Senate and House GOP members have indicated that they would reject the bill. Therefore, Senate leadership has delayed a vote on the BCRA until after the July 4th holiday recess.  Nevertheless, as we provided for the AHCA, below are key takeaways for employers and plan sponsors and a few comparisons between the AHCA and BCRA.  A more detailed comparison between key provisions of the Affordable Care Act (“ACA”), the AHCA, and the BCRA is provided at the end of this blog.

1. Individual and Employer Mandates. Like the AHCA, the BCRA would essentially repeal the ACA’s individual and employer mandates effective after December 31, 2015. Both bills do this by “zeroing-out” the penalties for not having minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate). Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era

In the absence of an individual mandate, the AHCA and BCRA have different methods of incentivizing individuals to maintain continuous health coverage. Under the AHCA method, insurance carriers would be required to charge a 30% premium surcharge to those who fail to have continuous coverage (i.e., a break in coverage of 63 days or more would trigger the surcharge). The BCRA would require insurance carriers to apply a 6-month blanket coverage waiting period to any individual with a 63-day or more break in continuous coverage during the prior 12 months.

Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era.

2. BCRA Retains ACA’s Subsidy and Tax Credit Program. The Senate appears to have rejected AHCA’s elimination of cost-sharing subsidies and premium tax credits available only for coverage purchased on the Marketplace. The AHCA would have replaced the ACA’s program with an advance tax credit program available to individuals purchasing individual market insurance (not just Marketplace coverage) or enrolled in unsubsidized COBRA coverage. Under the AHCA, the amount of the tax credit would be based on age and would be available only to individuals with income less than $75,000 (individual) or $150,000 (jointly with a spouse).

The BCRA, however, maintains the ACA’s cost-sharing subsidies and premium tax credit program, albeit with some modifications. Under the BCRA, cost-sharing subsidies and premium assistance would be determined based on age, with younger individuals getting more assistance than older individuals, and income. Household income in excess of 350% of the federal poverty line would disqualify an individual from cost-sharing subsidies and premium assistance, in contrast to the ACA’s 400% threshold. Additionally, under the BCRA, the premium tax credit would be based on a benchmark plan that pays 58% of the cost of covered services (in contrast to the ACA’s use of the second-lowest cost silver (70%) plan). This lower value of coverage effectively reduces the amount of premium assistance an individual can get.

3. Employer Reporting Obligations to Continue. Although the individual and employer mandates would be repealed, it is likely that the ACA reporting obligations (Forms 1094-B/C and 1095-B/C) would remain in place, at least in some forms. As noted above, the BCRA retains the ACA’s cost-sharing subsidies and premium assistance, the availability of which is conditioned on an individual not being enrolled in employer-sponsored coverage. Therefore, the IRS would likely still need to obtain coverage information from employers.

4. Cadillac Tax Repealed Subject to Reinstatement. Like the AHCA, the BCRA effectively delays the so-called Cadillac Tax until 2025. The Cadillac Tax was originally slated to be effective in 2018, but it was delayed until 2020 in prior budget legislation.

5. Most ACA-Related Taxes Repealed. The BCRA would also repeal most of the tax reforms established under the ACA. Most relevant to employers and plan sponsors would be the elimination of the contribution limit on health flexible spending accounts (HFSAs), the ability reimburse over-the-counter costs under HFSAs and health savings accounts (HSAs), the increase in HSA contribution limits, and elimination of the Medicare surcharge applied to high-earners.

6. Popular ACA Reforms Remain. As was the case under the AHCA, the BCRA would keep many popular ACA market reforms and patient protections in place. These include:

• The requirement to cover dependent children until age 26;

• The prohibition on waiting periods in excess of 90 days;

• The requirement for individual and small group plans to cover essential health benefits;

• The prohibition against lifetime or annual dollar limits on essential health benefits;

• The annual cap on out-of-pocket expenditures on essential health benefits;

• Uniform coverage of emergency room services for in-network and out-of-network visits;

• Required first-dollar coverage of preventive health services;

• The prohibition of preexisting condition exclusions;

• Enhanced claims and appeals provisions; and

• Provider nondiscrimination.

7. ERISA Preemption for “Small Business Health Plans.” The BCRA would add a new Part 8 to ERISA for “small business health plans.” Currently, some states have enacted insurance laws that prohibit small employers from risk-pooling their employees in a single, large group insurance plan. New Part 8 of ERISA would preempt these state laws and allow the formation of “small business health plans,” which, generally, are plans sponsored by an association on behalf of its employer members. Small business health plans must meet certain organizational and financial control requirements and apply to the Department of Labor for certification.

8. Employee Tax Exclusion Remains Intact. Like the AHCA, the BCRA does not currently include a limitation on the employee tax exclusion that would result in imputed taxes to employees if the value of health coverage exceeds a certain amount. This absence, however, does not necessarily mean that such a limit will not eventually be imposed. It is possible that Congress will consider limiting tax incentives for both retirement and health and welfare plans when broader tax reform is considered.

9. HFSA/HSA Expansion. As mentioned above, the BCRA includes the same modifications to the HFSA and HSA rules as the AHCA. The BCRA would remove the annual contribution cap on HFSAs. Additionally, HFSAs and HSAs would now be able to reimburse on a non-taxable basis over-the-counter medication without a prescription. The annual contribution limit to HSAs would be equal to the out-of-pocket statutory maximum for high-deductible health plans. Spouses would both be able to make catch-up contributions to the same HSA.

It is still too early to tell whether the BCRA will fare better than the AHCA. In any event, we will continue to monitor legislative efforts and will provide updates as substantive developments occur.

Health Care Reform Legislation Comparison
Shared Responsibility ACA AHCA

BCRA
Employer Mandate Applicable large employers (those with 50 or more full-time employees and equivalents) face penalties if minimum essential coverage not offered to 95% of full-time employees (and dependents) or if coverage is not minimum value or affordable. No penalties for failing to provide adequate coverage. No penalties for failing to provide adequate coverage.
Individual Mandate Individuals subject to tax if not enrolled in minimum essential coverage unless exception applies. No tax for failing to enroll in minimum essential coverage. However, effective for plan years beginning in 2019, a 30% premium surcharge would be charged by insurance carriers to an individual who purchases insurance coverage following a lapse in coverage of 63 days or more. No tax for failing to enroll in minimum essential coverage. However, individuals who have a lapse in coverage of 63 or more days in the prior 12-month period will be subject to a 6-month coverage waiting period.
Reporting IRC §§ 6055 and 6056 require reporting from issuers of minimum essential coverage and applicable large employers. No change to ACA reporting requirements under IRC §§ 6055 and 6056. Additional Form W-2 reporting required. No change to ACA reporting requirements under IRC §§ 6055 and 6056.

Market Reforms

 ACA AHCA

BCRA
Dependent Coverage If dependent children covered, coverage must continue until age 26. No change. No change.
Essential Health Benefits Small group and individual market plans must cover 10 essential health benefit categories, as defined by benchmark plan established by state. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Annual/Lifetime Dollar Limits No annual or lifetime dollar limits can be applied to essential health benefits. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Out-of-Pocket Maximums Out-of-pocket maximum applied to essential health benefits. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Preexisting Condition Exclusions Preexisting condition exclusions prohibited. No change, but insurance providers must apply a 30% premium surcharge if individual has a gap in coverage of 63 days or more. No change, but 6-month waiting period applied if individual has a gap in coverage of 63 days or more.
Preventive Care Preventive care covered without cost-sharing. No change. No change.
Emergency Coverage Emergency room visit at an out-of-network hospital must be covered at in-network rate. No change. No change.
Rescissions Coverage cannot be retroactively terminated except in cases of fraud or misrepresentation or for premium nonpayment. No change. No change.
Summaries of Benefits and Coverage Short (8-page) disclosure of plan terms and glossary distributed on an annual basis. No change. No change.
Enhanced Claims Procedures Claims procedures now require additional claims procedures and voluntary external review. No change. No change.
Provider Nondiscrimination Cannot discriminate against a health care provider acting pursuant to state license. No change. No change.
Section 105(h) Nondiscrimination Fully-insured employer-sponsored health plans cannot discriminate in favor of highly compensated individuals (not yet effective). No change. No change.
Medical Loss Ratio Individual and small group plans must spend 80% of premium income on claims and quality improvement. Large group insurance plans must spend 85% of premium income on claims and quality improvement. No change. Applicable ratio determined by the state (effective for plan years beginning on or after January 1, 2019).

Tax Reforms

 ACA AHCA

BCRA
Cadillac Tax 40% excise tax applied to cost of group health coverage exceeding threshold (effective January 1, 2020). Delayed until January 1, 2025. Repealed effective December 31, 2019, but to be reinstated effective January 1, 2025,
Small Business Tax Credit Tax credit for premiums paid toward group health coverage available to small businesses. Not available for plans that cover abortion for plan years beginning on or after January 1, 2017; repealed for plan years beginning on or after January 1, 2020. Same as AHCA.
Health FSA Limit Maximum contribution to health FSA set at $2,500 (subject to annual increases for inflation). Repealed effective January 1, 2017. Repealed effective January 1, 2018.
HSA Distribution Penalty Penalty for HSA distributions used for non-qualifying medical expenses increased to 20%. Repealed effective January 1, 2017. Penalty would go back to 10% for HSAs and 15% for Archer MSAs. Same as AHCA.
HSA Contribution Limits No change. Increased to match statutory out-of-pocket maximum for high-deductible health plans (effective January 1, 2018). Same as AHCA.
FSA/HSA Over-the-Counter Health FSAs and HSAs cannot reimburse over-the-counter products without a prescription (excluding purchase of insulin). Repealed effective January 1, 2017. Same as AHCA.
Medical Expense Deduction Itemized deduction under IRC § 223 available for medical expenses in excess of 10% of adjusted gross income. Repealed effective January 1, 2017. Threshold would return to 7.5% adjusted gross income. Same as AHCA.
Medicare Surcharge Additional 0.9% hospital insurance (Medicare) tax applied to high-earners. Repealed effective January 1, 2023. Same as AHCA.
Medicare Investment Income Tax Medicare tax of 3.8% applied to unearned income. Repealed effective January 1, 2017. Same as AHCA.
Health Insurance Tax Tax applied to insurance carriers based on premiums collected. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Health Insurer Compensation Deduction No compensation deduction available to certain health insurance providers for compensation in excess of $500,000 paid to applicable individuals. Repealed effective January 1, 2017. Same as AHCA.
Medical Device Tax Excise tax of 2.3% imposed on manufacturer, producers and importers of medical devices. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Branded Prescription Drug Fee Manufacturers and importers of branded prescription drugs are subject to an annual fee. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Retiree Drug Subsidy Amount received under Retiree Drug Subsidy must be taken into consideration when determining prescription drug cost business deduction. Repealed effective January 1, 2017. Same as AHCA.

Marketplace

 ACA AHCA

BCRA
Marketplace Structure

Individuals can purchase insurance coverage on risk-pooled Marketplace established by Federal or state government.   Individuals purchasing coverage on the Marketplace may be eligible for cost-sharing subsidies and premium assistance.  Plans available on Marketplace (“qualified health plans”) must meet certain cost-sharing and actuarial value levels (i.e., gold, silver, bronze plans).  Qualified health plans must cover essential health benefits.

 Effective January 1, 2020, cost-sharing subsidies and premium assistance are repealed. Additionally, Marketplace plans are no longer required to meet cost-sharing and actuarial value requirements.  Limited-scope, or catastrophic plans would be available.

No structural changes from ACA.   Marketplaces, including cost-sharing subsidies and premium assistance, remain intact with modifications.
Cost-Sharing Subsidies and Premium Assistance Available to individuals with household income between 100% and 400% of federal poverty line. Age is not a factor in amount of subsidies or assistance available.

For plan years beginning in 2018 and 2019, basic structure remains the same except that age and income are factors in the amount of cost-sharing subsidies and premium assistance that is available.  No subsidies or assistance is available for qualified health plans that cover abortion.

Cost-sharing subsidies and premium assistance repealed for plan years beginning in 2020. Instead, advance tax credit available based solely on age.

 Available to individuals with household income between 100% and 350% of federal poverty line. Age is a factor in amount of subsidies or assistance available.
Premium Rate Setting Small group and individual insurance markets may vary rates based only on certain factors, including individual or family coverage, community rating, age (3:1 ratio) and tobacco use.

Age ratio increases to 5:1 beginning January 1, 2018. States may apply to waive ACA requirements and base premiums on health factors.

 Age ratio increases to 5:1 beginning January 1, 2018. State Innovation Waiver Program (ACA § 1332) requirements relaxed, giving states ability to waive many of the ACA’s market reforms.

This post was written by Damian A. Meyers and Steven D. Weinstein of Proskauer Rose LLP.

Can Congress Get to “Yes” on Replacing the Affordable Care Act?

Senate Majority Leader Mitch McConnell recently gave a candid assessment of the chances of getting an Affordable Care Act (ACA) replacement bill through the Senate, saying “I don’t know how we get to 50 (votes) at the moment.” That succinctly captures the political dilemma. There has long been broad bipartisan agreement that the nation’s health care system was in need of repair. Something had to be done to contain rapidly rising health care costs, increase the quality of medical outcomes, and to expand coverage. But there was little or no bipartisan agreement on how to do it. Indeed, no major health care initiative since Medicare was enacted in 1965 has enjoyed true bipartisan support.

The most recent effort to overhaul the health care system was no exception. The ACA passed in March 2010 with no Republican votes. That wholly partisan effort, in turn, set off a determined, seven-year-long effort by Republicans to repeal the law. The most recent step on this tortuous journey occurred on May 4, 2017 when the House passed the American Health Care Act (AHCA) by a vote of 217-213. In this case, no Democrats voted for the bill. Twenty Republicans also voted no and the bill passed with just one GOP vote more than the 216 needed to pass.

As we explain below, the ACA and AHCA are “apples and oranges” in their approaches to reforming the healthcare system. Because each proceeds from different philosophical premises, this post briefly examines their key components and primary goals without opining on the merits. Our primary focus is on the political and policy challenges faced by Senate Republicans in getting a bill passed (which remains highly uncertain) and whether such a bill will differ greatly from the House product. In our view, to achieve the GOP’s publicly stated policy objectives, and faced with the constraints imposed by the budget reconciliation rules (explained below), Senate Republicans will be forced to address essentially the same questions as their colleagues in the House—and their solutions likely will differ from those of the House mostly in degree.

What the AHCA Does

In the AHCA, House Republicans singled out a few ACA provisions they had publicly campaigned against—most of which are contained in Title I of the law. These include the mandate that individuals purchase coverage; the narrow, 3:1 modified community-rating corridor that Republicans asserted made coverage prohibitively expensive for younger individuals; and the requirement that plans sold in the individual and small-group market include a comprehensive set of covered medical and related services known as “essential health benefits” (EHBs) The AHCA also would make major changes to Medicaid that go well beyond rolling back the program expansion authorized by the ACA.

The AHCA’s primary purpose is to reduce premium costs and reduce the federal government’s role in health care by giving more authority and flexibility to the states. The ACA’s primary goal, in contrast, was to expand insurance coverage in the individual markets—and it did that, although not as much as had been predicted. Another ACA goal was to make coverage more affordable, at least for low- and moderate-income individuals—and it did that too. But the ACA did little to lower medical costs, and from the available evidence had only a marginal effect on healthcare outcomes. Neither does the AHCA address those issues. It instead focuses mainly on reducing federal expenditures, shifting costs to the states, and constraining the growth of Medicaid. The recently issued report by the Congressional Budget Office and the staff of the Joint Committee on Taxation indicates that the AHCA would achieve significant success in this regard, estimating that the bill would reduce the cumulative federal deficit over the 2017-2026 period by $119 billion.

The GOP Challenge

With their slim 52-48 majority, Republican lawmakers don’t have the votes to repeal the ACA outright. That would require 60 votes to overcome a filibuster. Instead, they must rely on a special budget strategy called “reconciliation.” Created by the Congressional Budget Act of 1974, reconciliation allows certain bills that directly impact federal spending to be passed by a simple majority. For example, reconciliation rules would allow repeal of the ACA’s individual and employer mandates by a simple 51-vote majority because those mandates directly affect revenue; but reconciliation could not be used to repeal the employer reporting rules because those provisions do not directly affect spending. These restrictions severely limit which provisions of the ACA Republicans in the Senate (and by extension the House) can replace without Democratic support. We discuss those provisions below.

The individual mandate

The ACA included an “individual mandate” that requires most U.S. citizens to buy health insurance. The purpose was to ensure broad participation in the individual markets so that there would be enough healthy individuals in the risk pool to subsidize the cost of covering those who are less healthy. Most agree that the ACA penalty for not maintaining coverage was insufficient to induce enough healthy people into the pool. The result has been steep underwriting losses which have prompted major carriers to exit the public exchanges. The AHCA would eliminate the penalty retroactively, to the beginning of 2016. In its place, the bill would impose a “continuous coverage” requirement to induce people to buy coverage and stay covered rather than buying it only when they need it, which drives up costs in the exchanges. Health carriers could assess a 30 percent penalty on individuals who have a gap in coverage of more than 63 days in the prior 12 months. The Health Insurance Portability and Accountability Act (HIPAA) has provided a similar rule for employer-provided group coverage since 1996.

Community rating

Under community rating, premiums can vary by age, among other things. In the case of age rating, actuarial principles dictate that the premiums paid by the oldest subscribers should be about five times what younger subscribers pay. To mitigate the impact on older citizens, the ACA limited the rating range to 3:1. The AHCA allows a ratio of up to 5:1 which actuaries say more closely aligns premiums with the costs associated with age. AHCA proponents assert that the maximum 3:1 ratio dictated by the ACA unfairly penalizes younger, healthier individuals, discouraging them from participating in the individual markets and contributing to the underwriting losses in the ACA exchanges. They also assert that individuals 65 and older are eligible for Medicare and that the workers affected by the 5:1 ratio would be primarily those 54 to 65 years old—generally the highest earning years.

Premium tax credits

The AHCA scraps the ACA’s cost-sharing subsidies, and replaces its premium tax credits. Beginning in 2020, the AHCA would offer credits for U.S. citizens and qualified aliens enrolled in qualified health plans who are not eligible for other sources of coverage. The credit amounts are based on age and adjusted by a formula that takes income into account. Credits would be capped according to a maximum dollar amount and family size. In general, the AHCA subsidies are less generous than those provided by the ACA. According to the CBO report, repeal of the ACA’s tax credits saves some $665 billion while the cost of the AHCA’s tax credits is $375 billion—a net savings of $290 billion.

Medicaid

Medicaid is a health insurance program with shared federal/state authority and financing. Historically, coverage generally was limited to low-income families with children, the elderly, and people with disabilities. The ACA offers states generous federal funding designed to encourage expansion of their programs to cover all Americans under age 65 whose family income is effectively at or below 138 percent percent of federal poverty guidelines ($16,394 for an individual in 2016). Currently, 31 states plus the District of Columbia have expanded their programs.

The AHCA would change the current system of federal funding of Medicaid by placing per capita caps on federal payments to states. Under that approach, each state’s Medicaid spending, beginning in 2020, would be limited based on enrollee categories (i.e., children, disabled, etc.). States that exceed the limits would get less money the following year. Alternatively, states could opt to receive federal block grants (i.e., predetermined fixed amounts) to cover their Medicaid-eligible populations.

The Medicaid changes account for the single largest item of budgetary savings under the AHCA—some $843 billion over 10 years according to the CBO. The savings are important to achieving other GOP objectives such as tax reform, but many of the 16 GOP governors who expanded Medicaid have expressed concerns about the scope and timing of the changes and the impact on their citizens.

States’ ability to opt out

In an effort to persuade House conservatives to support the AHCA, Rep. Tom MacArthur (R-NJ) offered an amendment that would allow states to seek waivers of certain AHCA provisions. The idea was to devolve to those states flexibility to modify their coverage rules to best meet the needs of their constituencies. Under the amendment, states that are granted waivers may:

  • Adopt age-rated premium ratios higher than 5:1 for older individuals buying coverage in the individual and small group markets;

  • Define their own, less generous, “essential health benefits” (EHBs) for plans purchased in the individual and small-group markets instead of the 10 EHBs mandated by the ACA (and which the AHCA otherwise would leave in place); and/or

  • Bypass the 30 percent penalty for individuals who do not maintain continuous health coverage, and instead apply medical underwriting to the pricing of plans in such cases; but states seeking such waivers must have a high-risk pool or participate in the Federal “Invisible Risk Sharing Program” (explained below).

High-risk pools

High-risk pools are state programs that provide funding to cover the health care costs of individuals with catastrophic or pre-existing medical conditions and who are unable to purchase affordable coverage in the individual market. The AHCA embraces state high-risk pools as a way to contain the cost of medical premiums for healthy individuals. It does this by creating two risk pools: one for healthy individuals or those with continuous coverage, and the other for those with high-cost or pre-existing conditions. The idea is to lower premiums for healthy people while at the same time providing coverage for those with serious health conditions using a separate funding mechanism.

To fund coverage for high-risk individuals, the AHCA provides a total of $138 billion over 10 years through various mechanisms as follows:

  • A State Stability Fund in the amounts of $15 billion in 2018 and 2019, and $10 billion each year thereafter through 2026;

  • An additional $15 billion in 2020 that states could use for maternity coverage and newborn and prevention, treatment, or recovery support services for mental or substance use disorders;

  • An additional $8 billion for the period 2018-2023 to states with a “MacArthur waiver” (previously discussed); and

  • A Federal Invisible Risk Sharing Program to help with high-cost medical claims of certain individuals who buy coverage in the individual market.

The MacArthur waivers are not without controversy. The two biggest issues are the potentially large cost increases to older citizens and whether individuals with pre-existing health conditions will be adequately protected. Another question is how many states actually will seek waivers and assume the financial (and political) responsibility for protecting older and sicker workers if the federal dollars under the AHCA prove insufficient. The CBO makes an educated guess as to how many people might be affected by states getting waivers, but they are guesses nonetheless.

Ways to get to Yes

The CBO report estimates that from 2017 to 2026, the AHCA would reduce direct spending by $1.111 trillion and revenues by $0.992 trillion (resulting in a net deficit reduction of $119 billion—and that 23 million fewer people would have health coverage (CBO does not count as health coverage limited benefit plans, including so-called “mini-med” plans and fixed-dollar indemnity plans). These numbers are a direct consequence of the AHCA’s stated goals—to reduce the role of the federal government in regulating and financing health care, specifically in the individual market, Medicaid, and the uninsured.

Senate Republicans broadly share those goals, but they differ on how to achieve them, as did many of their House colleagues. To further mitigate the impact on individuals, the Senate could adjust the AHCA’s spending and revenue levels, as well as the timing of certain provisions—for example, they could push back the phase-out of the ACA’s Medicaid expansion provisions from 2020 to a later date. Similarly, the AHCA’s per-capita caps and block grant provisions could be adjusted to provide more money to the states. The trade-off would be higher spending levels than the House bill, but this could be offset by modifying the AHCA’s tax repeal provisions. For example, the ACA’s so-called “Cadillac” tax on high-cost employer plans, which the House bill delayed until 2026, could be allowed to go into effect earlier, thus generating more revenue. To the same effect, the Senate could push back repeal of the ACA’s Medicare payroll tax on high income individuals. Another step might be to provide additional subsidies for those aged 50 to 64 to mitigate any adverse effect of the increase in the premium age-rating ratio proposed by the House.

We are under no illusions that the policy differences among Senate Republicans can be reconciled—and if they can, that the House and Senate can reach agreement when they go to conference. All we know now is that the GOP is stuck with its seven-year public commitment to creating a better system with still no clear path forward. Democrats may be enjoying the Republicans’ predicament, but neither party is likely to be viewed favorably if the current system continues to falter and ultimately fails. If that happens, the price of our polarized political environment could be steep for both sides.

The sheer magnitude of the dollars at stake should compel policymakers to find a breakthrough. The Centers for Medicare and Medicaid Services reports that national spending on health care grew 5.8 percent to $3.2 trillion in 2015, accounting for 17.8 percent of GDP. Medicare spending alone was $646.2 billion, 20 percent of the total. Medicaid another $545.1 billion, or 17 percent. Thus, the most urgent practical question may not be whose theory of government is more correct, but whether the current rate of health care spending is sustainable. We can’t think of a better answer than economist Herbert Stein’s wry observation that, “if something cannot go on forever, it will stop.”

This post was written by Alden J. Bianchi andEdward A. Lenz of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.