The House of Representatives is moving ahead on the Republican plan -– the American Health Care Act (AHCA) – that would repeal and replace major provisions of the Affordable Care Act (ACA). On March 16, 2017, the House Budget Committee approved sending the bill to the full House as part of fiscal year 2017 budget reconciliation bill, and a vote is expected later this week. The fate of the bill is uncertain in the face of united Democratic opposition to the plan and the objections of various ideological and regional factions within the Republican party. The political challenge has been complicated by a Congressional Budget Office (CBO)/Joint Committee on Taxation (JCT) estimate that the AHCA would result in 14 million more uninsured individuals in 2018, rising to 24 million by 2026. The CBO and JCT project that more of half of the coverage loss would be a result of the steep –$880 billion – proposed cut in federal Medicaid outlays, which would result in 14 million fewer Medicaid enrollees by 2026. And yet one of the fundamental disputes among Republican lawmakers is whether the ACA’s Medicaid expansion should be phased out sooner than the legislation now contemplates (2020), or whether additional protections should be provided in Medicaid expansion states.

Due to complex budget reconciliation rules, the AHCA concentrates on tax and Medicaid spending provisions. The AHCA would repeal the tax penalties enforcing the ACA mandates that most individuals obtain health insurance coverage and that certain employers offer employees coverage meeting minimum essential coverage standards, retroactive to those impacted by the penalty in 2016. Instead, to encourage healthier people to purchase insurance, the AHCA would require insurers to impose a 30% premium penalty for individuals who have not maintained continuous insurance coverage. Insurers also generally would be permitted to charge older individuals five times more than younger individuals (instead of the current 3 to 1 cap), beginning in 2018. Furthermore, the AHCA also would replace ACA insurance premium subsidies with refundable tax credits beginning in 2020 and establish a Patient and State Stability Fund intended to lower patient costs and stabilize state markets. The CBO/JCT estimate that, by 2026, the average subsidy under the AHCA would be about half of the average subsidy under current law. As noted, the AHCA also includes significant Medicaid cuts in the form of reduced enhanced federal matching and limits on growth in per-enrollee payments starting in 2020. In light of the expected decrease in the number of individuals with Medicaid coverage, the AHCA would eliminate cuts in disproportionate share hospital spending imposed under the ACA, and thus increase outlays by $31 billion. The AHCA also would repeal various ACA taxes, including the medical device tax, the prescription drug manufacturers’ tax, the health insurance provider fee, and the surtax on high-income taxpayer’s net investment income. Overall, CBO/JCT estimate that the AHCA would decrease federal spending by $1.2 trillion and reduce federal revenues by $883 billion, resulting in a $337 billion reduction to federal deficits, over the 2017-2026 period.

House GOP leaders concede that changes to the bill will likely be necessary to win approval. In fact, House leaders released proposed amendments late on March 20 that would modify the bill’s Medicaid provisions, including establishing an optional block grant program as an alternative to the bill’s per enrollee allotment, and giving states the option of instituting a work requirement for nondisabled, nonelderly, non-pregnant adults as a condition of receiving Medicaid coverage. The amendments also would accelerate the repeal of various ACA taxes.

Republican leadership and President Trump are also emphasizing that the AHCA is only the first of three planned phases of health reform. As set forth in a March 10, 2017 White House statement and echoed by House GOP leadership, ACA repeal and replace will be followed by administrative actions to “stabilize health insurance markets.” The White House promises regulatory reforms including: promoting insurance portability and purchasing across state lines; loosening restrictions on the financial structure of plans offered on insurance exchanges to provide access to lower-premium options; curbing insurance enrollment abuses and encouraging full-year enrollment; and giving states more flexibility in spending Medicaid funds and regulating insurance markets.

After that, the third phase of reform contemplates additional legislative action, including steps to expand the use of health savings accounts to pay for health care costs; streamline FDA processes (e.g., speeding generic drug approvals); establish association health plans for small businesses; reform medical malpractice laws; and make additional statutory changes to enable states to set insurance market and Medicaid program parameters.

Before tackling these additional reforms, however, House Republicans will need to run the political gauntlet associated with fulfilling their longstanding promise to repeal and replace the ACA. Whether Senate Republicans will respond favorably to this measure is still unclear.