The American Health Care Act – Version 1.0

On March 6, House Republicans unveiled an initial version of the American Health Care Act, the highly anticipated legislation designed to repeal and replace significant aspects of the Affordable Care Act. Comprised of a pair of bills introduced in the Energy and Commerce Committee and the Ways and Means Committee, the proposed AHCA cleared both committees Thursday night through party-line votes and is now headed to the Budget Committee for continued review.

As anticipated, the legislation will proceed under the budget reconciliation process that was initiated by the Senate in a party-line vote on Jan. 12. The reconciliation process will allow the AHCA’s proponents to take advantage of certain streamlined procedural rules, most notably in the Senate, where reconciliation measures cannot be filibustered. The procedural luxuries come at a price, as reconciliation measures generally must be limited to matters that affect government spending and taxation. Nonetheless, the AHCA would implement an ambitious list of changes:

• Phase out of Medicaid Expansion. The ACA’s Medicaid expansion would end Dec. 31, 2019, including the state option to extend Medicaid coverage to adults above 133 percent of the federal poverty level, at which point federal Medicaid funding would transition to a “per capita cap” system that would provide states with a capped amount of Medicaid funds per enrollee.
   
• Repeal of the individual mandate. The tax penalty imposed on individuals who fail to maintain the minimum health insurance coverage under Internal Revenue Code Section 5000A would be repealed.
   
• Premium surcharges for lapses in coverage. In lieu of the individual mandate, the AHCA introduces a 30 percent penalty on premiums for lapses in insurance coverage in order to encourage continuous enrollment.
   
• Repeal of the employer mandate. The AHCA would also repeal the employer mandate retroactively for 2016—the requirement under IRC Section 4980H that certain employers (generally, those employing more than 50 FTEs) offer “minimum essential coverage” to employees or potentially owe a shared responsibility payment to the IRS.
   
• Refundable tax credits in lieu of subsidies. The ACA subsidies to assist qualifying individuals with the costs of insurance premiums would be replaced by a system of refundable tax credits based on age, which would phase out at certain income levels.
   
• Repeal of various ACA taxes and fees. The House bill would repeal certain ACA taxes and fees on health insurers, medical devices, branded prescription drugs (beginning in 2018) and tanning salons. The ACA’s “Cadillac” tax on high-cost health insurance plans would remain, but delayed until 2025.
   
• Reversal of the ACA’s cuts to DSH payments. The AHCA would eliminate the ACA’s planned cuts to disproportionate share hospital payments—supplemental Medicaid payments made to hospitals that serve a disproportionately large number of Medicaid patients and uninsured individuals.
   
• Defunding of certain organizations. The House bill would bar certain nonprofit organizations that provide abortions from receiving Medicaid reimbursements.
   
• Establishment of a “Patient and State Stability Fund.” The proposed $100 billion fund would go to states for providing financial assistance to high-risk individuals and stabilizing health insurance premiums in the individual market.
   
• Increase in age variation in health care premium rates. The AHCA would increase the permitted age band rating to a 5:1 ratio from the ACA’s current 3:1 ratio, allowing insurers to charge older patients five times as much as younger patients.

The House bills would leave in place a few popular elements of the ACA; most notably, the rule allowing children to stay on their parents’ health insurance until age 26 and the protections against denials of coverage for preexisting conditions. Those components are beyond the reach of what Congress can repeal through budget reconciliation legislation. It was widely expected that they would be spared from the GOP repeal efforts because of their significant public support. The insurance exchanges established under the ACA would also remain, although many of the changes may bring their continued viability into question.

Despite the streamlined budget reconciliation process, the AHCA is certain to face many challenges, several of which began to emerge within the first 24 hours after the bills' unveiling:

• Crafting a final House bill that can pass in the Senate will be one such obstacle. Republicans hold a slimmer majority in the Senate, and it is possible there will be pressure to remove or rework certain components of the AHCA, such as the proposals to effectively defund Planned Parenthood, that may not be as palatable to moderate GOP senators. The proposed Medicaid overhaul may also be an impediment. Four Republican senators—Rob Portman (OH), Shelley Moore Capito (WV), Cory Gardner (CO) and Lisa Murkowski (AK)—sent a letter to Senate Majority Leader Mitch McConnell on Monday afternoon expressing strong opposition to any legislation that would not protect Medicaid expansion, which each of their states enacted under the ACA.

• Questions also remain regarding how the measures proposed in the AHCA will be funded. Congressional Republicans have not offered any cost or coverage estimates. Importantly, the AHCA has also not yet been scored by the nonpartisan Congressional Budget Office, which typically provides formal cost estimates for all significant legislative proposals. A CBO score on the AHCA is expected in the coming weeks, but House Republicans unveiled the bills before the score was available.

• Political responses to the bills on Tuesday, from both side of the aisle, were largely critical. Industry groups have also weighed in with objections. One such group, the American Hospital Association, wrote in a March 7 letter to Congress that it cannot support the AHCA "in its current form.” AHA expressed particular concern over the proposed roll back of Medicaid expansion and the House’s decision to proceed without a CBO score.

The AHCA is likely to be followed by more salvos from Congressional Republicans aimed at other aspects of health care reform. Certain aspirational GOP policies, including medical malpractice reforms and rule changes that would allow insurers to sell across state lines, are not included in the AHCA and are beyond the scope of what can be done through the budget reconciliation process.