This document summarizes the differences between the Affordable Care Act (ACA or Obamacare), the House of Representatives’ American Health Care Act (AHCA) and the Senate’s Better Care Reconciliation Act (BCRA), as of the July congressional recess.1
INDIVIDUAL MARKET SUBSIDIES/CSRS
The ACA created two main programs to help low- to moderate income Americans afford insurance through the individual markets: (1) premium tax credits, and (2) cost-sharing reduction subsidies (CSRs).
Premium Tax Credits
ACA The ACA provided Americans between 100% and 400% of the federal poverty line (i.e., between roughly $12,000 and $48,000 for an individual) with a tax credit to subsidize premiums. The credit’s size varies on the basis of income and geography.
AHCA The House bill keeps a modified version of the premium tax credit for two years, but repeals and replaces the ACA credit in 2020. The House replaces the ACA’s income-based tax credit with a flat credit based primarily on age (e.g., anyone between 40 and 49 years old with an income below $75,000 will receive an annual credit of $3,000). The House credit would be an improvement for some younger and upper-middle-class individuals who use the individual market; however, it would be significantly less generous than the ACA for those who are older, low-income, and/or live in areas with high health care costs.
BCRA Alternatively, the Senate bill would maintain the ACA tax credit scheme, but with significant modifications that begin in 2020, including a slightly narrower income range for eligibility and a less generous formula for calculating the size of the credit. Americans who are older, low-income and/or live in areas with high health care costs would fare better under the Senate bill than the House bill; however, for most, the tax credits under the Senate bill will be less generous than under the ACA.
Next Steps The Senate bill saves the government about $200 billion more than the House bill. To appease moderate senators (but at the risk of upsetting his conservative wing), Senator McConnell might use some of those savings to make the tax credits more generous.
ACA The ACA also authorized subsidies to reduce out-ofpocket costs (e.g. deductibles, copayments, etc.) for low-income Americans. The legality of how the administration has funded CSRs is currently in doubt, as litigation regarding that issue is currently on appeal. In addition, the Trump administration has not promised to continue making the payments. This uncertainty has contributed to decisions by some insurers to raise premiums or withdraw from individual markets for 2018.
AHCA/BCRA The House bill does not help to resolve the uncertainty. It repeals the CSRs starting in 2020 and provides no funding for them in the meantime. On the other hand, the Senate bill would expressly fund the CSRs through 2019, which should give insurers some certainty. However, it also repeals the CSRs in 2020.
STATE STABILIZATION/REINSURANCE FUNDS
In lieu of CSRs and other ACA provisions regarding the individual insurance market, both the House and Senate bills would create significant pools of federal funding for states to draw from to stabilize premiums, encourage insurers to participate in the market, cover specific services or subsidize the costs of high-risk individuals (e.g., through the creation of a high-risk pool).
AHCA The House bill creates a “State Stability Fund” and allocates a total of $138 billion over nine years. Three key components of the fund include: (1) $100 billion that states can use to stabilize premiums (e.g., through risk-sharing or reinsurance programs), subsidize high-risk individuals, expand preventive, maternity or mental health services, or reduce cost-sharing; (2) $15 billion for a federal risk sharing program to reduce risks of high costs for insurers; and (3) $15 billion for states to use in 2020 to expand maternity/newborn and mental health/substance use services.
BCRA The Senate bill creates two similar state stability innovation programs. The Senate bill currently allocates less money for these purposes than the House bill ($112 billion over nine years, versus $138 billion). The Senate’s short-term stability program provides $50 billion to CMS to fund a reinsurance program over the next four years. The long-term stability program provides $62 billion between 2019 and 2026 for states to use to subsidize high-risk individuals, stabilize premiums and insurance markets, expand services, and/or reduce out-of-pocket costs. In addition to these funds, the Senate bill also appropriates $2 billion in 2018 to help states address the opioid epidemic.
Next Steps To appease moderates, the Senate’s revised bill could include additional funding to stabilize the insurance markets, especially in the near term. Reports suggest that Senate leaders will also likely increase funding for opioids to as much as $45 billion over 10 years, which is a top priority for moderate senators from opioid-ravaged states like Ohio and West Virginia.
To finance the ACA’s reforms and expansion of coverage, the law imposed multiple new taxes. The House and Senate bills take similar approaches in delaying or repealing almost all of the ACA’s taxes.
INDUSTRY The House and Senate bills provide tax relief for numerous players in the health care industry. Both bills repeal either immediately or within one year the ACA’s taxes on medical devices, branded prescription drugs, health insurance plans and tanning salons.
EMPLOYERS With respect to employers, both the House and Senate bill would delay the so-called Cadillac tax on high-cost, very generous employer-sponsored insurance plans until 2026. This is a boon for employers and labor unions.
WEALTHY In their current form, the House and Senate bills provide tax relief to wealthy individuals as well. Both bills repeal the 0.9% Medicare surtax on wages of high-wealth individuals; however, the repeal is not effective until 2023. Both bills also repeal immediately the ACA’s 3.8% surtax on certain net investment income of high-income individuals and trusts. There is chatter that the Senate is considering keeping these taxes in place to appease moderates and create more savings to spend elsewhere.
HSAs Both bills also have numerous provisions to expand the use of tax-advantaged accounts, such as Flexible Spending Accounts or Health Savings Accounts (HSAs). Conservative senators (e.g., Cruz/Lee) are pushing for more provisions to promote such accounts.
Summary of Major Tax Provisions
- The individual & employer mandate penalties are retroactively eliminated, beginning 2016.
- The ACA imposes a 2.3% excise tax on certain medical devices, which has already been suspended for 2016 and 2017. The AHCA repeals the tax beginning in 2017 and the BCRA repeals it beginning in 2018; however, since the tax is already suspended in 2017, the two bills will have the same effect.
- The ACA imposed an annual fee on certain health insurers, which has already been suspended for 2017. The AHCA and BCRA would repeal this tax in 2017.
- The ACA imposes a 10% tanning tax, but the AHCA eliminates the tax after June 30, 2017, and the BCRA eliminates the tax after September 30, 2017.
- The ACA imposes a tax on prescription drugs, but the AHCA eliminates the tax in 2017 and the BCRA eliminates the tax in 2018.
- The ACA imposes a Net Investment Income Tax and both the AHCA and BCRA repeal the tax in 2017.
- The ACA imposes a Medicare Hospital Insurance surtax on the wages of high-wealth individuals. Both the AHCA and BCRA repeal the tax in 2023.
- Tax on over-the-counter medications is repealed in both bills, beginning 2017 (i.e. consumers will be able to use tax-exempt HSA funds for over-the-counter medications again).
- The ACA imposed a 40% excise tax on high-cost employersponsored insurance known as the Cadillac tax. The tax has already been delayed until 2020. Both the AHCA and BCRA would further delay the tax until 2026.
- Under the ACA, Archer Medical Savings Account and HSA distributions for purposes other than qualified medical expenses were taxed at 20%. The AHCA and BCRA reduce the tax rate to 15% and 10%, respectively, beginning in 2017.
- Under current law, taxpayers who itemize their deductions may deduct qualifying medical expenses to the extent they exceed 10% of the taxpayer’s adjusted gross income. The AHCA would lower the threshold to 5.8%, while the BCRA would lower the threshold to 7.5%, beginning in 2017.
There are two major Medicaid changes: (1) both the House and Senate bills fundamentally restructure how the Medicaid program is financed; and (2) both bills roll back the ACA’s Medicaid expansion.
As a result of these changes, the bills cut Medicaid spending by roughly $800 billion over 10 years and would result in up to 15 million fewer Medicaid beneficiaries by 2026.
Structural Reforms to Medicaid
- Currently, Medicaid is an open-ended entitlement, which means the federal government pays a set percentage of each dollar a state spends under its Medicaid program. If Medicaid costs go up one year (e.g. because an expensive, new drug hits the market), then the feds will continue to pay its set percentage of each additional dollar the state spends.
- Starting in 2020, both the House and Senate bills would replace this open-ended entitlement with a per capita cap model. This means the feds will reimburse states up to a predetermined cap, which varies based on the number of people enrolled in Medicaid in that state. If Medicaid costs for the year exceed that cap, the state is on the hook.
- The per enrollee cap would be based on the state’s historical Medicaid costs and would increase each year by a specific inflation rate.
- The House bill uses the medical inflation rate. Medicaid costs often grow faster than medical inflation so this should still result in Medicaid cuts to most states.
- The Senate bill is even less generous—in 2025, it switches from medical inflation to the lower urban inflation rate, which will result in even deeper, long-term Medicaid cuts.
The Medicaid Expansion
ACA The ACA expanded Medicaid to all adults making less than 133% of the federal poverty line (roughly $16,000 for an individual). As a result of the Supreme Court, the expansion is optional for states. As of today, 31 states have elected to expand. For states that expand, the federal government pays a higher percentage (90% by 2020) of the costs of covering this group.
AHCA/BCRA Both the House and Senate bills roll this enhanced federal funding for the expansion population back to the regular federal matching rate (albeit on different timelines).
- The House bill ends the enhanced funding in 2020; however, it grandfathers it in so that states continue to receive enhancing funding for those expansion adults who are enrolled on the last day of 2019 until they drop off the Medicaid rolls.
- The Senate has a more gradual phaseout. Under their bill, states receive four additional years of enhanced funding from 2020 through 2023. However, the enhanced matching rate gradually declines each year and will be subject to the per capita limits that go into effect in 2020.
Next Steps Medicaid will be a key issue to watch going forward. For one, if it is enacted, the cuts will have serious consequences for hospitals, providers, Medicaid managed care plans, and states. Second, Medicaid is perhaps the trickiest issue the Senate faces. A coalition of moderate senators has vocally opposed the bill’s deep Medicaid cuts. To win their support, the Senate might need to adopt a slower phaseout of the expansion or choose a more generous growth rate for the per capita amounts. However, such changes could upset more fiscally conservative members.
KEY INSURANCE REGULATIONS
- The ACA imposed an individual mandate requiring most Americans to have health insurance or pay a tax penalty, as well as an employer mandate requiring large employers to provide employee health insurance. Both the Senate and House bills would repeal both mandates, effective retroactively beginning calendar year 2016.
- Without an individual mandate, though, a healthy person might wait until they got sick to purchase insurance. Recognizing this risk of adverse selection, both bills impose a quasi-penalty on individuals who do not maintain continuous coverage (i.e., those who went more than 63 days without insurance in the past year). Under the House bill, individuals who do not maintain continuous coverage will be required to pay the insurer—not the government—a 30% premium surcharge for one year. Under the Senate bill, such individuals must wait six months before coverage kicks in after enrolling.
- The ACA also imposed a wide range of requirements on who insurers must cover, what they must cover and what they can charge.
- The House and Senate bills are similar with respect to many of these requirements:
- First, neither bill repeals the ACA’s requirement that insurers must cover young adults up to 26 on their parents’ plan.
- Second, both bills will likely allow insurers to charge older individuals up to five times more than younger enrollees. The ACA had limited it to three times as much. This will result in lower premiums for the young and higher premiums for the old.
- Third, both bills would allow individual states to alter the ACA’s “essential health benefits,” which refer to the services that all individual market plans must cover. States could, for example, allow insurers to once again offer plans that do not cover maternity services or mental health services.
- Narrowing the scope of essential health benefits would create skinnier plans with with lower premiums. However, individuals who need services that are no longer required will face higher outof-pocket costs. In addition, the ACA’s prohibition on annual or lifetime limits only applies to services that qualify as essential health benefits.
- The major difference in this area between the House and Senate is pre-existing conditions. The ACA prohibited health insurers from denying coverage or charging more on the basis of an individual’s health.
- The Senate bill keeps this requirement and would not let states waive it.
- On the other hand, the House bill would allow states to waive this requirement for a select population—those who do not have continuous coverage (i.e., went more than 63 days without insurance in the past year). In states that adopt this waiver, insurers can charge these individuals more because of a pre-existing condition.
Next Steps Insurance regulations are another tricky issue for the Senate. Some conservatives, like Ted Cruz, do not think the Senate bill does enough to roll back the ACA’s requirements. He is pushing an amendment worth monitoring that would allow insurers to sell plans that do not comply with ACA regulations, so long as the insurer also offers an ACA-compliant plan. In addition to the policy issues with such an amendment (e.g., a serious risk of market segmentation and a subsequent “death spiral” among the ACA-compliant plans), his amendment could also turn off moderate Republicans who want to preserve the ACA’s pre-existing condition protections.
- Lastly, there are a couple noteworthy provisions regarding abortion and women’s health to keep an eye on.
- Both the Senate and House bills prohibit individuals from using premium tax credits to purchase health plans that also cover abortion.
- Second, both the Senate and House bills would partially “defund” Planned Parenthood for one year, by prohibiting Medicaid, Medicare or the Children’s Health Insurance Program from reimbursing Planned Parenthood for any services (not just abortion) that they provide. Planned Parenthood could still receive discretionary federal grants, such as Title X funding, though.
Next Steps: Two Republican senators—Murkowski (Alaska) and Collins (Maine)—oppose defunding Planned Parenthood and plan to offer an amendment restoring funding. It appears unlikely that such an amendment would have sufficient support to pass.