May 10, 2017
By Theresa Thompson*
The American Health Care Act of 2017 (AHCA), introduced by Representative Diane Black (R-TN) on March 20, passed the House on May 4 with a 217-213 vote. All 193 Democrats and 20 Republicans opposed the controversial bill, which follows the Republicans’ first attempt at legislation to replace the Affordable Care Act (ACA) that was pulled in March. Supporters of the AHCA maintain it will address the shortcomings of the ACA, as more health insurance plans pull out of state exchanges and many people see their premiums rise. Republicans assert that the flexibility granted to insurers under the bill—e.g., insurance plan issuers would no longer be restricted to offering Bronze, Silver, Gold, and Platinum plans—would mean more individual plans offered and therefore more options for consumers. Further, although average insurance premiums would be 15% to 20% higher through 2019, reductions would be expected in the years to follow.
The AHCA would preserve one of the most popular provisions of the ACA, which permits people under the age of 26 to remain on their parents’ plans. However, most other regulations and consumer protections instituted by the ACA face likely elimination through the extensive opportunities the bill provides for state waivers. For example, while the AHCA appears to retain protections for individuals with pre-existing conditions, state waivers could result in higher premiums or denial of coverage altogether. The AHCA intends to rely on high-risk pools to support those individuals who have expensive policies or conditions, with the federal government providing up to $138 billion to states over 10 years. The Congressional Budget Office (CBO) has not yet scored the version of the bill that was passed by the House, but some policy experts have questioned whether those funds would be sufficient to provide full health coverage for the population with medical problems that is currently buying insurance through the individual market. State waivers could also foreseeably be used by states to permit insurers to exclude coverage for services that are currently considered “essential health benefits” (e.g., maternity care, emergency care, mental health services, and prescription drugs), to charge older people more than five times what is charged to younger people for the same policy, and to institute annual and lifetime benefit limits. These waiver policies would apply not only to insurers selling plans through the individual marketplace, but also insurers offering employer-based plans.
The tax provisions of the ACA would also be overhauled under the AHCA. The penalties for people without health insurance would be repealed and replaced with a premium penalty for lapsed coverage. This premium penalty could be levied against any person who goes longer than 63 days during a 12-month look back period without continuous health insurance coverage. The penalty would actually come from insurance issuers, who would be free to assess a flat 30% late-enrollment surcharge on top of the base premium offered to an applicant of a particular plan. Additionally, the AHCA repeals the requirement for certain employers to provide health insurance to their qualifying employees and delays the effective date of the 40% excise tax on high cost employer-sponsored health coverage from taxable periods after December 31, 2019 to taxable periods beginning after December 31, 2025.
The AHCA would also repeal taxes imposed by the ACA on high-income people, insurers, drug companies, and others, constituting a reduction of approximately $592 billion in revenue (as estimated by the staff of the Congressional Joint Committee on Taxation). Rather than government-subsidized insurance policies, the AHCA would provide low-income individuals with tax credits to purchase state-approved, major medical health insurance. The tax credits would be based on age, ranging from $2,000 annually for people in their twenties to $4,000 annually for people over the age of 60. Generally, eligibility will be limited to individuals without access to government health insurance programs or employer-based plans. Further, to qualify for the tax credit, one must be a citizen, national, or qualified alien of the United States, and not incarcerated. To receive the full credit for one's age bracket, the individual must not make more than $75,000 per year (with additional allowances for additional dependent family members); the credit phases out by $100 for every $1,000 in income higher than those thresholds.
The AHCA also repeals, effective 2020, the cost-sharing subsidy program included in the ACA that is at issue in House v. Price. In Price, the U.S. House of Representatives is asserting that the Obama administration exceeded its constitutional authority by executing this program without a corresponding appropriation from Congress.1 Depending on how this section of the AHCA evolves as it works its way through the Senate in the coming weeks, the D.C. Circuit may again delay the lawsuit's proceedings or dismiss it for mootness.
Considering the sweeping changes, the AHCA is facing extensive criticism. Many are concerned about the impact the bill could have for those with low incomes. The tax credits provided to those aged 60 or older would be drastically lower than the subsidies these individuals receive under the ACA. Further, significant changes would be made to the Medicaid program, including rolling back expansion, converting to a block grant payment system, and reducing federal requirements. Medicaid beneficiaries such as nursing home residents or people with disabilities could see reductions in the services they receive. The bill also would cut off funds to Planned Parenthood for one year and increase funding for Federally Qualified Health Center grants. Some health care providers, hospital groups, and patient advocacy groups have released statements opposing the bill, including the American Medical Association, the American Nurses Association, and the American Hospital Association. And, while the CBO estimated that the first version of the bill would reduce the budget deficit by $337 billion, the CBO also estimated that the bill would leave 24 million Americans without health insurance in less than a decade, 4 million more than gained coverage under the ACA. Since that score was released by the CBO, revisions have been made to the Medicaid, high-risk pool, and state waiver aspects of the bill. A new CBO score on the version of the AHCA that passed the House is expected soon. The bill now moves onto the Senate, where its fate is uncertain.
*We would like to thank Theresa E. Thompson (Epstein Becker & Green PC, Washington, DC) and Eric J. Crowder (Hall Render Killian Heath & Lyman PC, Annapolis, MD) for respectively authoring and reviewing this email alert.
1 Case No. 16-5202 (D.C. Cir.) (being held in abeyance by the D. C. Circuit with an upcoming May 22, 2017 filing date).