What's in the GOP Obamacare Replacement Bill?

Update (3/21/2017): This description is relevant for the original version of the American Health Care Act. An amended version was released on March 20.

The House Ways & Means and Energy & Commerce Committees released their draft bill to repeal and replace the Affordable Care Act (ACA or "Obamacare") on Monday evening. The bill, called the American Health Care Act (AHCA), would repeal nearly all of the ACA's taxes next year, phase out the enhanced match for the Medicaid expansion, replace the ACA's insurance subsidy with a flat credit, and make other changes.

The press has written various reports about the bill in more broad strokes, but we prefer to get into the wonky details. Below is a summary of the AHCA:

Title I - Energy & Commerce

This portion of the bill most directly deals with issues related to Medicaid and several insurance provisions. The individual items include:

• Enact per-capita caps on Medicaid funding. The AHCA would retain the current matching rates for Medicaid's non-expansion population but would cap the growth of total payments starting in Fiscal Year (FY) 2019. Caps would be separated by enrollee group – five in total (elderly, blind and disabled, children, expansion population, and non-expansion adults) – with limits based on FY 2016 spending indexed to medical inflation. The caps would then grow each year with medical inflation. Disproportionate Share Hospital (DSH) spending, Medicare cost-sharing, administrative expenses, and Children's Health Insurance Program (CHIP) spending would be exempt from these caps.
• Phase out the enhanced match for the Medicaid expansion and offer some funds to non-expansion states. The AHCA would allow states that expanded Medicaid to continue to insure the expansion population with the federal government paying 90 percent of the costs through 2020. States would continue to collect a 90 percent match for those in the expansion population who maintain continuous enrollment after 2020. States could also enroll new beneficiaries in the expansion population, but new enrollees would only be funded at the traditional Medicaid rate (about 57 percent for the average state). For states that did not expand Medicaid, $10 billion over five years would be distributed to help cover some of their costs.
• Repeal the Medicaid Disproportionate Share Hospital (DSH) cuts. The ACA put in place cuts to Medicaid DSH payments to account for the anticipated decline in the number of uninsured people, and other legislation extended these cuts through FY 2025. The AHCA would repeal the cuts between FY 2020 and 2025 and exempt non-expansion states from cuts in FY 2018 and FY 2019.
• Repeal Essential Health Benefit requirements for Medicaid programs. States would no longer have to design Medicaid programs that include all ten Essential Health Benefits mandated by the ACA.
• Defund Planned Parenthood for one year. The AHCA would disallow federal funds to be spent at entities that provide abortion and family planning services who also received $350 million or more from the government in FY 2014, namely Planned Parenthood.
• Defund the Prevention and Public Health Fund. The ACA established this fund to promote and fund initiatives aimed at wellness and preventative health. The AHCA would discontinue this fund at the end of FY 2018.
• Provide additional funding to Community Health Centers for FY 2017. The AHCA would increase funding for Community Health Centers by $422 million in FY 2017.
• Prohibit lottery winners from being enrolled in Medicaid. Under current law, some state lottery winners technically collect income in only one month because they receive a lump sum from their lottery winnings, allowing them to be eligible to receive Medicaid for the rest of the year. This provision would fix this to disallow lottery winners from receiving Medicaid in the following few months after they win as well.
• Require states to test expanded Medicaid eligibility every six months. To try to reduce ineligible individuals from receiving Medicaid in the expansion population, the AHCA would require states to review eligibility every six months starting in October 2017.
• Repeal the cost-sharing subsidy in the ACA. The ACA provided cost-sharing subsidies to insurers to encourage low- and moderate-income individuals and families to choose silver insurance plans in exchange for the government covering more of the costs associated with them. The repeal of this provision would be delayed until 2020.
• Create a Patient and State Stability Fund with $100 billion of funding over nine years. This would take the place of the previous "State Innovation Grants" in a more narrowly-tailored provision that would require states to come up with a plan to use their funding for health-related benefits or otherwise have their funding used for market stabilization as a default. Some of the things states could use these funds for subsidizing high-risk pools, reducing deductibles or out-of-pocket limits in the individual or small group markets, providing preventive services, or subsidizing cost-sharing. The default option allows the federal government to make cost-sharing payments on behalf of the state to reduce premiums.
• Create a continuous coverage incentive with a 30 percent penalty. In order to incentivize individuals to maintain coverage, insurers would be allowed to charge 30 percent higher premiums for individuals who let insurance coverage lapse for more than two months.
• Change age-rating. The AHCA would change the age-rating provision that limits premiums for older enrollees at three times those of younger enrollees to now being able to charge five times more than younger enrollees (from 3-to-1 to 5-to-1).
• Eliminate actuarial value metal tiers. Under the ACA, different metal-based tiers (bronze, silver, gold, and platinum) were made to indicate the actuarial value of insurance plans. The AHCA would eliminate them in 2020.

Title II - Ways & Means

This portion of the bill would end penalties for the employer and individual mandates – effectively repealing them – immediately (and actually back to tax year 2016).

It would also take the ACA's small business and premium tax credits and replace them with a new tax credit that is based on age. The new credit would range between $2,000 for covered individuals under age 30 to $4,000 for covered individuals over age 60, scaling up by $500 per ten years of age and totaling up to $14,000 for a family. It would begin to phase out at $75,000 for individuals/$150,000 for families at a rate of ten percent of the excess, i.e. someone age 60 making $76,000 would receive a $3,900 tax credit.

The AHCA would also repeal the ACA's taxes and set up a new tax credit for purchasing insurance. Most of the taxes would not be repealed until 2018 while the Cadillac tax would only be delayed until 2025 (though that likely indicates they would prefer to fully repeal it).

The following taxes from the ACA would be repealed:

Source: Joint Committee on Taxation (1, 2, 3, 4, 5).

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Early in this debate, we set forward three principles that policymakers need to follow to ensure that any "repeal and replace" effort is fiscally responsible – making sure that it retains or replaces the ACA's cost-control measures, reduces the debt, and maintains or improves Medicare solvency. Unfortunately, without a score from the Congressional Budget Office (CBO), it is impossible to know the debt implication of this legislation. As for our other two criteria, it seems clear this legislation would worsen Medicare's financing by removing the HI payroll surtax, and while it does include a few measure that could help with cost control, it doesn't do nearly enough. In particular, the AHCA would delay the "Cadillac" tax on high-cost health insurance plans, which is a key cost-control measure from the ACA, without any sort of replacement. We hope that as amendments continue to shape the legislation and it comes closer to being final, policymakers will adopt necessary changes to the legislation that make it more fiscally responsible and bend the health care cost curve.

Without a CBO score, we're unable to see whether the savings in this legislation will sufficiently finance the replacement. The budgetary impact of the AHCA will depend largely on estimates of how many people have insurance, how many will use the credits, how these changes will affect employer-sponsored insurance coverage, how states will react to the Medicaid funding chnages, and other issues.

Policymakers should continue to evaluate the best path forward for health reform. That path should include measures that are fully offset, improve Medicare solvency, help control health costs, and stem the debt's growth. There are still plenty of options and opportunities to do so.