On June 22, 2016, Speaker Paul Ryan (R-WI) unveiled the Republican Party’s new health care agenda last Wednesday in a speech at the American Enterprise Institute. This is the first time that Congressional Republicans have proposed specific proposals for their “repeal and replace” effort against the Patient Protection and Affordable Care Act (ACA). Deemed “A Better Way,” the Ryan paper primarily reflects traditional and familiar Republican ideas about health care, rather than new ideas. The full proposal can be found here.

As drafted, the white paper is not susceptible to scoring, so the cost of the proposal is unknown. Notably, Speaker Ryan doesn’t propose the passage of one sweeping replacement law but, instead, the passage of several separate pieces of legislation. The stated goal of the proposal is to lower health care costs, expand flexibility for patients and providers, delegate greater authority to states on Medicaid and Medicare issues, and support research and innovation in medical research.

More Choices, Lower Costs, Greater Flexibility

HSAs: The Speaker’s framework names several proposals rooted in the premise that the ACA limits patients’ and providers’ ability to make the best economic choices for themselves. These policies include expanding health savings accounts (HSAs) to allow spouses to make catch up contributions to the same account; to allow certain expenses incurred before coverage begins to become eligible for reimbursement from an HSA account; and allowing participants in the Indian Health Service and TRICARE to qualify for HSAs.

Consumer Choice and Portable Plans: In addition to HSA reforms, the plan advocates for expanding the use of defined contribution methods such as health reimbursement accounts (HRAs); providing financial assistance for insurance plans that can move with individuals between various jobs and into retirement; and offering a refundable tax credit for health expenses to those without employer coverage.

Employer-Sponsored Insurance: The plan suggests three modifications to employer-sponsored insurance (ESI). Firstly, it suggests capping the amount of insurance costs that individuals can exclude from their gross income. Second, it omits employee contributions to an HSA that are made on a pre-tax basis from counting towards the cost of coverage that is used to determine the cap. Finally, it excludes lower income workers and individuals living in areas with high labor costs from the so-called “Cadillac tax,” a 40% excise tax on high end premium plans.

Pooling: Speaker Ryan proposes allowing consumers to find coverage options across state lines and to allow states to enter into interstate pooling compacts. He suggests creating avenues for small businesses to enter into association health plans (AHPs) to increase their ability to obtain cheaper costs for their employees’ plans. Under this framework, the AHP pools would be barred from “cherry picking” participants based on their health or from charging different rates for those who are sicker. Speaker Ryan also advocates for the implementation of individual health pools (IHPs), where individuals would also be able to collectively bargain for better plan rates when buying insurance on their own.

Additional Proposals: Speaker Ryan’s plan would remove restrictions on employee wellness programs that are linked to financial rewards, so long as the incentives do not violate the Americans with Disabilities Act or the Genetic Information Nondiscrimination Act. It would allow employers to choose between various insurance options including self-insurance and stop-loss protections. Additionally, Speaker Ryan addresses medical liability reform by proposing a cap on non-economic damage awards and encouraging states to work with professional medical societies to develop laws requiring higher standards of evidence in suits against medical professionals.

Protecting and Strengthening Coverage Options for All Americans

The Republican health care proposal includes provisions prohibiting sudden policy cancelations and barring the denial of coverage based on pre-existing conditions. It continues to allow dependents to stay on their parents’ plan until the age of 26. The plan would also modify the current ratio used to determine the cap on the difference between older and younger individuals’ plan costs from three-to-one to five-to-one.

The plan carves out a block of $25 billion for State Innovation Grants, where states would receive funding for innovation programs based on how well they perform on tasks such as reducing premiums and the number of people in that state who are uninsured. The plan additionally sets aside $25 billion in federal funding for high risk pools consisting of individuals priced out of coverage.

The proposal would also ensure implementation of the Weldon Amendment, which prohibits the use of federal funds towards states that discriminate against those who exercise their conscience. It would additionally prohibit federal funds from covering abortions.

Medicaid Reform: Empowering States and Increasing Flexibility

Per Capita Allotment: Speaker Ryan’s plan proposes providing states with a choice between per capita Medicaid allotments or block grants. Under the per capita funding system, states would receive federal allotments beginning in 2019, where the amount of the funds distributed would be determined by that state’s per capita allotment for the aged, the blind and disabled, children, and adults, as well as the number of individuals enrolled in each of those categories. Federal funding would be capped based on the category, independent of how much the state actually spends per enrollee so as to encourage efficient use of the grant.

Also beginning in 2019, states with ACA expanded Medicaid programs would continue to receive the same amount of funding, but would be able to reallocate those funds between participant groups wherever the need is greatest. Additionally, the enhanced Federal Medical Assistance Percentages (FMAP) for the expanded adult population would be incrementally lowered each year until it reaches the state’s normal FMAP level. The Children’s Health Insurance Program (CHIP) would return to a joint federal-state financing system.

Under the proposed per capita allotment system, states would be permitted to set their premiums and to require able-bodied adults be employed, seeking employment, or enrolled in an approved educational program. States would also gain the ability to charge premiums on benefits and populations whose coverage is optional. Medicaid demonstration waivers would be required to be budget-neutral for the federal government. Finally, states would be able to decide their own laws regarding Medicaid participation in elective abortions.

Block Grants: States that do not opt for a per capita allotment would automatically be enrolled in a federal block grant program, where funding is determined on the assumption that individuals enrolled in the state program under the ACA expansion would be transitioned into other plans. Aside from funding required services for legally mandatory populations, states would have flexibility in determining how the block grant is spent.

Protecting and Preserving Medicare

The proposal lays out several propositions for modifying Medicare. It suggests repealing the benchmark cap system for Medicare Advantage (MA) plans, limiting negative payment adjustments for MA coding that were created by the ACA, and expanding the open enrollment window for MA. The proposal also aims to repeal the Independent Payment Advisory Board, to repeal the Center for Medicare and Medicaid Innovation by January 2020, and to repeal the ACA provision allowing CMS to adjust payments to different states in a manner that is budget neutral. The plan also seeks to repeal the ACA ban on physician owned hospitals.

Speaker Ryan also suggests structural reforms to Medicare, such as introducing a value based insurance design for MA and reforming Medigap plans. His plan proposes combing Medicare Parts A and B, creating a unified deductible, and combing all existing Medicare Savings Programs into one singular program. Speaker Ryan suggests creating a personalized care demonstration program where beneficiaries and providers can agree to enter into arrangements for non-Medicare services and allowing providers to choose which health plans they participate in without the possibility of losing their medical license.

The health care plan recommends creating one national pool of uncompensated care (UCC) funds that are distributed to Disproportionate Share Hospitals base on federally collected data; creating a Medicare Compare website; and increasing the Medicare retirement age beginning in 2020 until it corresponds with the Social Security retirement age.

Promoting Innovation in Health Care

The Republicans’ proposal aims to keep medical and health regulations up to date with current scientific practices. It therefore suggests providing the National Institutes of Health with a robust level of discretionary funding, supporting young scientists who are working on medical innovations, streamlining clinical trials, modernizing data collection, moving forward on precision medicine, and advancing the use of electronic health records.