On Friday, February 24, 2017, Politico released details of a leaked draft House GOP “repeal and replace” bill (Draft) aimed at dismantling key provisions of the ACA, including Medicaid expansion, the individual mandate, subsidies based on individual income, and many ACA tax provisions.  The Politico article is available here.  Congressional leadership was expecting opposition to the ACA repeal and replace at the recess town hall meetings, and released a policy brief outlining their proposal on February 16, 2017.  It remains to be seen whether Members’ reactions to the feedback from their districts and town hall meetings will have any influence on policy direction.

According to Politico, Speaker Paul Ryan’s (R-WI) office, when asked about the Draft, deferred to the House committees, which declined to comment on specifics of a draft that will change as the bill moves through the committees.

While speculation was that the House Energy & Commerce and Ways & Means Committees would begin marking up the Draft this week, these committees are not expected to proceed to mark up until the week of March 6.  In that time, adjustments may be made to this Draft, and the Congressional Budget Office (CBO) will evaluate and “score” the Draft.

As detailed below, the Draft proposes substantial changes. The Draft would eliminate the ACA’s individual and employer mandates.  Income-based tax credits for health insurance would be replaced with age-based tax credits.  The Draft would eliminate the ACA’s mandate that health insurance plans offer certain “essential health benefits” and give States the option of defining their own benefit requirements. Health insurance plans would be permitted to charge older beneficiaries premiums that are up to five times greater than those charged to younger beneficiaries, an increase from the current 3:1 differential permitted under the ACA.  Individuals who do not maintain continuous insurance coverage would be penalized with a one-year premium increase of 30 percent.  The Draft would create a block grant program, with a commitment of $100 billion through 2026, to assist States to create high-risk pools for individuals with preexisting conditions.  The Draft also proposes a roll-back of the Medicaid expansion and the replacement of the current Medicaid match with a per-capita payment mechanism.  The Draft would also prohibit providing Federal funding to any organization that provides abortions, regardless of whether the funds are used for abortions.

1. Changes to Medicaid

The Draft would end ACA Medicaid expansion in 2020.  This will result in the maximum income threshold for Medicaid eligibility decreasing from the current level of 133 percent of Federal poverty level (FPL) to the pre-ACA level of 100 percent of FPL.  The Draft would also end the ACA’s enhancements to Medicaid benefits.  State Alternative Benefit Plans would no longer be required to cover the ACA’s defined “essential health benefits.”

The Draft would also end the current Medicaid model of an open-ended Federal match. States would instead receive a fixed amount of funding for each enrollee.

1. State Innovation Block Grants

The Draft provides for the establishment of a State Innovation Grant and Stability Program, which would offer block grants to States beginning in 2018.  States could use these block grants to offer financial assistance to create high-risk pools for individuals with preexisting conditions who are unable to purchase health insurance.  The block grants could also be used to stabilize premiums, promote access to preventive services, and assist individuals with out-of-pocket costs like copayments and deductibles.  The Draft allocates a total of $100 billion toward the program: $15 billion per year for 2018-19 and $10 billion per year for 2020-26.  For 2018-19, the money would be allocated among the States based on a formula that considers the number of enrollees in a State’s Exchange plans and the cost of those plans’ premiums relative to the national average.  For 2020-26, the money would be allocated based on a methodology that considers the percentage of low-income residents and the number of uninsured.

1. Changes Relating to Tax Credits and Subsidies

The ACA provides tax credits (which vary based on income level), which may be paid in advance, to assist low-income individuals and families who cannot obtain affordable health insurance through their employers to purchase coverage through State-based insurance Exchanges. The ACA also provides small business tax credits to assist small employers of lower-wage earners to provide health insurance to their employees.  The Draft makes substantial changes, including:

1.  
   1. The rule allowing for advance payments under Internal Revenue Code (IRC) § 36B(f)(2)(B) would not apply  between December 31, 2017 and January 1, 2020.
   2. The premium tax credits would be modified after December 31, 2017 until December 31, 2019.  Key changes include:

• Qualified health plans eligible for purchase with Federal assistance would not include grandfathered health plans or plans that include abortions (other than in cases of rape, incest, or to preserve the life of the mother).  Individuals may purchase separate abortion coverage and any non-Federal health insurance issuer may offer it.
• Credits are not allowed unless the taxpayer (or either spouse) is a citizen, national, or lawful alien of the United States.
• Advance payments will not be made to any health plan which is not enrolled in and through an Exchange.
• Requirements for tax return filings involving off-Exchange premium credits.

1.  
   1. The premium tax credit would be repealed, and related advanced payment provisions, exchange participation requirements, and eligibility disclosures related thereto are eliminated after December 31, 2019/January 1, 2020.
   2. Small business tax credits under IRC § 45R would not apply after December 31, 2019.
   3. Replaces the income-based premium tax credit with an age-based refundable tax credit for health insurance that is the lesser of a flat amount (starting at $2,000 per year for those under 30 up to $4,000 per year for those over 60) or actual costs up to $14,000 per year, which may be paid in advance as monthly payments.  In order to be considered eligible coverage, the health insurance must be on the individual market or unsubsidized COBRA and not include coverage for abortions (other than in cases of rape, incest, or to preserve the life of the mother).  The credit includes a host of special rules, and the program for advance payment will be created by the Secretaries of HHS and Homeland Security and the Commissioner of Social Security.

1. Continuous Health Insurance Coverage Penalty

Beginning in 2018-19, the Draft would require insurers to penalize individuals who do not maintain continuous coverage with a one-year 30-percent premium increase.

1. Continuation of Grandfathered Plans

Under the ACA, an individual with a grandfathered health plan would eventually be required to switch to an Exchange plan.  The Draft would permit insurers to continue offering grandfathered plans.

1. Elimination of “Essential Health Benefits” Requirement

The ACA requires individual health plans to offer certain “essential health benefits.” The Draft would sunset this requirement after 2019 and permit States to determine their own requirements.

1. Increase of Permitted Age Premium Differential

The ACA restricts insurers from charging older beneficiaries for premiums that are more than three times the premiums for younger beneficiaries. Beginning in 2018, the Draft would permit insurers to increase the premium differential from 3:1 to 5:1.

1. Mandates Essentially Eliminated
   1. The ACA requires that individuals maintain minimum essential coverage and established penalties for failure to do so; the penalties have been reduced to zero beginning December 31, 2015.
   2. The ACA requires large employers to offer minimum essential coverage to its employees (with certain exemptions); the penalties have been reduced to zero beginning December 31, 2015.  

1. Changes to Taxes on Employer-Provided Health Coverage
   1. The Draft adds a new “excess benefit” tax.  The amount an employer spends on an employee’s health coverage (subject to certain exceptions for things like Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), disability, and worker’s compensation) will be taxable as part of an employee’s gross income, to the extent it exceeds an annual dollar limit.
2. Taxes and Fees

The following taxes and fees are repealed or otherwise eliminated:

1.  
   1. The tax on employee health insurance premiums and health plan benefits under IRC § 4980L;
   2. Taxes on amounts spent on over-the-counter medications in connection with employee benefits under IRC § 106;
   3. The increase of tax on HSAs and Archer MSAs under IRC § 223(f)(4)(A);
   4. The fee imposed on sales of branded prescription drugs ends December 31, 2017;
   5. The medical device excise tax imposed under IRC § 4191(a) will not apply after December 31, 2017;
   6. The annual fee imposed on health insurance providers;
   7. The increased chronic care tax under IRC § 213(a);
   8. The increased Medicare tax under IRC § 3101(b);
   9. The excise tax on indoor tanning services; and
   10. The net investment tax under IRC § 2A.

1. Repealed/Eliminated Restrictions
   1. The limitation on contributions to Flexible Spending Accounts (FSAs) under IRC § 125 subsection (i) is repealed.
   2. The limits on the allowable deduction for remuneration for services provided by individuals to certain health insurance providers under IRC § 162(m)(6) do not apply after December 31, 2016.
   3. The elimination of the deduction for expenses allocable to Medicare Part D subsidies is repealed.
   4. The economic substance doctrine codified in IRC § 7701(o) stating a transaction has economic substance if: (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position; and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.  This doctrine disallows tax benefits under subtitle A of the IRC if the transaction lacks economic substance or a business purpose and underpayments resulting from failing to meet both parts of the test are subject to penalties.  The sections related to these penalties are also repealed.

1. Other Rule Changes Regarding Abortion
   1. The Draft prohibits any Medicaid funding from going to any provider that provides abortions – regardless of whether the funds are used to pay for abortions – with exceptions for rape, incest, and life-threatening conditions. This would effectively end all Federal funding for Planned Parenthood and other similar organizations that provide abortions.
   2. Adds for purposes of small employer health insurance expense credits under IRC § 45R(h) that a “qualified health plan” does not include any health plan that includes coverage for abortions (other than in cases of rape, incest, or to preserve the life of the mother).
   3. Allows non-Federal health insurance issuers to offer, and employers to purchase for its employees, separate coverage for abortions so long as no credit is allowed with respect to employer contributions for such coverage. 

1. Health Savings Accounts Changes
   1. Amends IRC § 223(b)(5) to allow both spouses to make “catch-up” contributions to the same HSA.
   2. Amends IRC § 223(d)(2) so that if an HSA is created within 60 days of beginning coverage under a high deductible plan (HDP), the HSA may be treated as created on the date HDP coverage begins solely for purposes of determining whether an amount paid is used for a qualified medical expense.
   3. Increases HSA maximum contribution limits to the amount of deductible and out-of-pocket limitations under IRC § 223(c)(2)(A)(ii)(II).

1. Repeal of Medicaid Disproportionate Share Hospital (DSH) Reductions

The ACA provides for a schedule of annual reductions to Medicaid DSH allotments. Those reductions vary between $1.8 billion and $5 billion from 2017 through 2024. The Draft would eliminate these scheduled reductions.

1. Repeal of Public Health Improvement Funding

Beginning in 2018, the Draft would end funding for the Prevention and Public Health Fund, which was created by the ACA to provide for sustained national investment in prevention and public health initiatives.

Please click here for a copy of the Draft.