Congress is now back in session and, once again, focus has turned to health care. With all eyes on returning health care reform to the forefront, a flurry of activity has sparked new legislative efforts including the introduction of the Graham-Cassidy legislation, Medicare for All, and a Senate Finance Committee agreement to a five year reauthorization of the Children’s Health Insurance Program (CHIP). Here’s a summary of the efforts currently underway for Graham-Cassidy as well as a review of what is included in the bill. Subsequent posts will cover other congressional developments.

The Unveiling of the Graham-Cassidy Legislation

Legislation by Senators Lindsey Graham (R-LA) and Bill Cassidy (R-LA) was formally unveiled on September 13, 2017. A summary of the bill follows, but in its current form, Graham-Cassidy would block grant the funding in the Affordable Care Act (ACA) to states, make significant changes to the reforms in the ACA, and change the traditional Medicaid program into a per capita cap or block grant program.

The Graham-Cassidy legislation appears to be shy of the 50 votes required to pass the Senate, but its supporters are working hard to convince their colleagues to get behind what could be the chamber’s last opportunity to pass legislation that repeals and replaces the ACA. Senator Rand Paul (R-KY) – who supported earlier repeal and replace efforts – has been highly critical of the measure, but most Senators have been relatively quiet on their position. Without Paul’s vote, the measure will need to maintain support by the Senators who voted for earlier efforts, as well as flip two of the following: Senator Susan Collins (R-ME), Senator Lisa Murkowski (R-AK) or Senator John McCain (R-AZ). Graham is very close friends with Senator McCain (R-AZ), which could prove an interesting dynamic. Last week, Senate Republican Leader McConnell (R-KY) called on the Congressional Budget Office to expedite the score of the proposal, although he has not indicated whether he is willing to take up the measure on the Senate floor this month.

The Senate loses its reconciliation vehicle on September 30, 2017, after which the legislation will require 60 votes to pass the Senate, so it is unclear whether there would even be enough floor time to move this bill. That said, if the Republicans can secure enough votes for this measure, expect them to find a path forward before the end of the month.

The House Republicans have been closely tracking the Graham-Cassidy developments. If the Senate can get to the required 50 votes on a repeal/replace bill, the House is expected to take up the legislation.

A Review of the Graham-Cassidy Legislation

The Graham-Cassidy legislation would make drastic cuts to programs added or expanded by the ACA in 2020, including the termination of the Medicaid expansion, the premium support subsidies for individuals to buy health insurance, elimination of small business tax credits, the ending of cost sharing reduction subsidies for low-income Americans, and removing the individual and employer mandates. In lieu of these programs and requirements, the legislation would provide states with significant federal funds to develop market-based health care initiatives outside the parameters established by the ACA.

Federal Grants for Market-Based Health Care

The centerpiece of these efforts is the proposed appropriation of federal funding for seven years for market-based health care initiatives, starting at $146 billion in 2020 and increasing to $190 billion in 2026. This funding approaches but may not equal estimates of ACA federal spending nationwide. The funding would be apportioned among states in accordance with a statutory formula, and be available to states for expenditures the state makes consistent with a plan submitted to the federal government. Examples of permissible plans include:

  • Programs to help high-risk individuals purchase insurance in the individual market
  • Programs to stabilize insurance premiums and promote market participation
  • Payments to health care providers for the provision of services
  • Funding assistance to reduce out-of-pocket costs of individuals in individual market plans
  • Reductions of premium cost for individual market plans and for individuals without access to employer coverage
  • Insurance coverage for Medicaid beneficiaries through health insurance issuers;
  • Coverage programs for individuals not eligible for Medicaid or CHIP through arrangements with managed care organizations.

In connection with these plans, states could receive waivers of ACA requirements, and could allow insurers to vary premium rates based on health status, age, or other considerations (not including sex or classes protected under the U.S. Constitution), or decline to offer the ACA’s “essential health benefits.” States could also waive medical loss ratio requirements for insurance plans.

The legislation would also retain and expand the authority under section 1332 of the ACA, which allows states to request waivers of the ACA’s insurance market requirements if they can demonstrate more effective approaches. The legislation would make approval of such requests mandatory if they meet the current statutory criteria related to cost-effectiveness, access and cost sharing for enrollees, and would extend the length of the waivers to 8 years.

Changes to the Medicaid Program

Similar to previous Republican health care efforts, the Graham-Cassidy legislation would make significant modifications to the Medicaid program. Notable program changes are as follows:

  • Ends the Medicaid Expansion. While previous iterations of the legislation had gradually phased out support or allowed the expansion to continue without the enhanced federal matching rate provided for by the ACA, the Graham-Cassidy legislation would entirely remove authority from states to cover the Medicaid expansion population. This change would be effective January 1, 2020, with the exception of certain Native American beneficiaries. As a result, the 30 states that have already expanded their Medicaid programs would need to terminate coverage, and potentially could transition individuals in the expansion population to alternative initiatives funded under the market-based grants described above.
  • Disproportionate Share Hospital (DSH) Payment Reductions. Scheduled reductions to state allotments for payments to hospitals that serve a disproportionate share of Medicaid and uninsured beneficiaries are retained, and would take effect as scheduled. In some cases, states could have a portion of their DSH cuts restored if they experience a “grant shortfall,” which occurs when the state’s allotment from the market-based health care grant amount increases slower than an inflation adjuster.
  • Per Capita Cap. As in each of the prior Republican health care bills, Graham-Cassidy would create a new “per capita cap” financing structure that significantly reduces the growth in federal spending on the Medicaid program. The structure of this provision mirrors prior legislative efforts, with few modifications.
  • Block grants. As in the prior legislation, states would have the option to apply for a block grant of federal funds in lieu of receiving funds under the normal Medicaid matching formula. Graham-Cassidy limits this option to non-elderly, non-disabled adults.
  • Work Requirements. Allows states to impose work requirements on Medicaid recipients who are not pregnant, disabled, elderly, children, or caretakers of a child under the age of six or a child with disabilities. Exceptions exist for individuals who are sole parents or caretakers of a young child or a child with disabilities, for full-time students, or individuals participating in outpatient drug addiction or rehabilitation programs. Individuals that do not meet the work requirements imposed by the state would lose access to Medicaid coverage.
  • Limitations on Provider Taxes. Would limit the scope of permissible health-care provider taxes that may be used to fund a state’s Medicaid program. If implemented, many states would need to restructure their provider tax programs or restructure the financing of Medicaid expenditures.
  • Other Notable Changes:
    • Option for states to earn quality performance bonus payments from FY 2023 through FY 2026. States would earn the payments by having lower than expected aggregate medical assistance expenditures; states would be required to distribute the bonus payments on quality improvement.
    • Limits the scope of retroactive Medicaid coverage to two months before the date of application. Current law requires coverage three months before the date of application; other Republican proposals would have limited it to services in the month of application.
    • New authority for four year Medicaid home and community based service demonstration projects.
    • Option to expand coverage for psychiatric hospital services to individuals age of 21 to 65, notwithstanding the general Medicaid prohibition on payment for services for adults in an institution for mental disease (IMD).
    • Expansion of federal support for services provided to eligible Native Americans who are Medicaid beneficiaries.
    • Retains provisions in prior GOP health care bills that would prohibit federal funding to Planned Parenthood and other entities meeting certain designated criteria. The qualifying criteria have been modified in the Graham-Cassidy legislation so that other non-profit providers that are part of national chains and which provide abortion services outside the scope of the Hyde amendment could potentially be implicated.

Insurance-Related Changes

The Graham-Cassidy legislation introduces the following insurance changes:

  • Effectively eliminates employer mandate penalty, retroactive to calendar year 2016.
  • Repeals the reduction of the employer deduction for retiree prescription drug plans receiving Part D subsidies, effective for tax years after December 31, 2016.
  • Eliminates age restriction on the sale of catastrophic coverage plans (currently cut off at age 30), effective for plan years beginning on or after January 1, 2019.

Health Savings Account (HSA) Changes

The following HSA changes are also included in the legislation:

  • HSA contribution limits will increase to the High Deductible Health Plan (HDHP) out-of-pocket limits and consumers will be permitted to use HSA funds to pay premiums for certain HDHPs, effective tax years after December 31, 2017.
  • Will not allow HSA funds to be used for a HDHP that covers abortion, effective for plan years beginning after December 31, 2017.
  • Allows HSAs to be used to pay for primary care service arrangements (concierge medicine), effective tax years after December 31, 2016.
  • Allows HSAs to be used to pay for expenses of children under age 27, effective tax years after December 31, 2017.
  • Establishes a 60-day grace period after enrollment in an HDHP to establish an HSA and also allows reimbursement of medical expenses incurred during that period from new HSA, effective for HDHP plan coverage beginning after December 31, 2017.
  • Allows both spouses to make catch-up contributions to the same HSA account, effective tax years after December 31, 2017.
  • HSA and FSA funds will be able to be used on over-the-counter medications, effective tax years after December 31, 2016.
  • Reduces tax on non-qualified HSA and Archer MSA distributions, effective for distributions made after December 31, 2016.

Other Notable Tax Changes Introduced by Graham-Cassidy

  • Eliminates the individual mandate penalty, retroactive to calendar year 2016.
  • Eliminates premium tax credits, effective tax years after December 31, 2019.
  • Eliminates small business tax credits, effective tax years after December 31, 2019.
  • Repeals cost-sharing reduction subsidy program, effective for plan years beginning after December 31, 2019.
  • Repeals the medical device tax, effective for sales after December 31, 2017.
  • Excludes from definition of “Qualified Health Plan” those plans that cover abortion, effective tax years after December 31, 2017.

Stay tuned as subsequent posts will cover the other activities currently happening including efforts to stabilize the insurance exchanges, Medicare for All, and the CHIP program reauthorization.