President Trump’s February 28 speech to Congress offered few details of a White House vision on health care reform (see box below). But the president seemed to endorse House Speaker Paul Ryan’s plan to repeal and replace the Affordable Care Act (ACA) and to radically alter the way that the federal government funds Medicaid. Since then, Health and Human Services Secretary Tom Price has moved to tamp down resistance from the more conservative wing of the party—of which he is a recent veteran—that wants to repeal the ACA but not offer as generous tax credits to people who purchase health insurance. So, it seems likely that the House will push through a bill soon.

The Senate will not be as easy to move. Only three Republican senators need to vote against a bill for it to fail. A few, like Rand Paul (KY) and Ted Cruz (TX), favor the more conservative approach. A few others, like Susan Collins (ME) and Lisa Murkowski (AK), lean toward a more moderate stance; this includes opposition to the provision in the draft House bill to defund Planned Parenthood. For the Senate to pass any bill, significant changes to the House version are probable.

HOUSE BILL FEATURES

Mandates, exchange plans, subsidies, and essential health benefits: All these ACA features are to be repealed. In their place would be tax credits—between $2,000 and $4,000, scaled by age, not income, though an income-based phase-out could appear—to buy private insurance. Private plans would neither have to offer the full array of benefits nor meet a minimum actuarial value. People who buy high-deductible plans would be able to fund tax-advantaged health savings accounts (HSAs). Limits on tax deductibility would be higher than under current law.

Pre-existing conditions and high-risk individuals: People with pre-existing conditions would have some protection against being dropped if they maintain continuous coverage. For people who might fall through the cracks, the bill offers “state innovation grants” of no defined amount to support high-risk pools and other measures that states could design. There would be a default reinsurance fund for states that fail to accept grants. Insurers would be reimbursed for covered individuals having medical claims above $50,000 but with a cap of $350,000. 

Taxes: All of the taxes imposed by the ACA would be eliminated. While the “Cadillac tax” is included among those taxes, something not too dissimilar will appear. To fund the new subsidies and HSA tax breaks, there would be a cap on the tax exemption for employer-sponsored plans at the 90th percentile of current premiums.

Medicaid expansion: The ACA expansion of Medicaid would phase out by 2020. States that expanded could continue to cover non-disabled adults over 100 percent of the federal poverty level but without enhanced federal funding. Disproportionate share hospital (DSH) funds taken away by the ACA would be restored to help cover uncompensated care costs of safety net hospitals.

Medicaid funding: The core Medicaid funding design that has functioned for more than 50 years—it was not brought about by the ACA—would be transitioned, starting in 2020, from open-ended entitlement to fixed per capita allotments to each state, distinct for each of four eligibility categories. Trending is proposed at Medical CPI plus 1 percentage point. This is at least 1 percent below the Centers for Medicare & Medicaid Services’ estimates of Medicaid cost growth, so it would leave states with less and less of a federal contribution over time. States could opt for block grants (no variation based on population) and receive added flexibility.

We note that the Medicaid provisions, in particular, are facing pushback from Republican governors, about half of whom are in states that took up Medicaid expansion under the ACA. Most want to keep the expansion alive. We will write more on that topic in the next Perspectives on Health Care & Life Sciences.