Monthly Health Care Reform Update - May 2017
1 like52 views
This monthly update discusses the resurgence of the American Health Care Act (AHCA) and its recent passage in the House of Representatives. Key amendments, the MacArthur and Upton amendments, gained support without alienating other factions, leading to a narrow vote in favor of the AHCA. The update emphasizes the uncertain future of the AHCA, particularly its implications for employer-sponsored group health plans and the need for ongoing ACA compliance.
Monthly Health Care Reform Update - May 2017
- 1. Monthly Health Care Reform Update THE RESURGENCE OF THE AMERICAN HEALTH CARE ACT This update is part of a Brown & Brown series summarizing new guidance issued in connection with the Patient Protection and Affordable Care Act (also known as the ACA or Health Care Reform). We are joining forces with our business partner, the law firm of Miller Johnson, to provide these updates to you. For this edition, we examine the recent resurgence and passage (in the U.S. House of Representatives) of the American Health Care Act (“AHCA”). Background of the AHCA President Trump requested that the U.S. House of Representatives (the “House”) hold a vote on the AHCA by the full House on March 24, 2017. However, Representative Paul Ryan, the Speaker of the House, cancelled this vote at the last minute because the AHCA did not have the support of the required 216 representatives to pass. In the following weeks, numerous individuals (including Vice President Pence) attempted to secure additional support for the AHCA. These attempts were unsuccessful because any proposed change to the AHCA to attract members of the conservative-leaning Freedom Caucus, caused members of the more-moderate-leaning Tuesday Group to abandon their support. As explained in the previous edition of the Monthly Update (entitled “The Demise of the American Health Care Act”), this challenge appeared to be the proverbial “nail” in the AHCA’s coffin. This was true, until … the MacArthur and Upton Amendments. The MacArthur and Upton Amendments The MacArthur Amendment (named after Representative Tom MacArthur (R-NJ)) and the Upton Amendment (named after Representative Fred Upton (R-MI)) were successful in gaining enough support of members of the Freedom Caucus without costing the support of members of the Tuesday Group. As a result, by a narrow margin of 217-213, the House passed the AHCA on May 4, 2017 (the vote was largely on party lines—i.e., all Democrats and 20 Republicans voted against the AHCA). As explained below, changes to the AHCA made by the MacArthur and Upton Amendments have little effect on how the AHCA, as originally drafted, would impact employer-sponsored group health plans.
- 2. 2 The MacArthur Amendment The MacArthur Amendment permits states to apply for a waiver of the following AHCA provisions that apply to insurance policies offered in both the individual and small-group markets: The maximum age rating ratio of 5-to-1. (The AHCA increases this ratio from 3- to-1, which currently applies under the ACA.) Under this waiver, a state could increase this ratio beginning in 2018. The requirement to provide benefits in ten categories of “essential health benefits.” Instead, a state could define its own essential health benefit requirements, including—presumably—to impose no essential health benefit requirement. This waiver is permissible beginning in 2020. The requirement to use “adjusted community” rating, which restricts premium underwriting to variations based on: (1) family size (individual or family); (2) geography (rating area); (3) age; and (4) tobacco use. Instead, insurers (in states that were granted waivers) would be permitted to use medical underwriting (variations in premiums based on health status) for a period of 12 months, but only for individuals who had a gap of creditable coverage of at least 63 days. This waiver is available beginning in 2019, but only for states that—in addition to receiving a waiver—participate in the Federal Invisible Risk Sharing Program, or operate a similar risk-sharing program. Outside of fully insured policies offered in the small group market, it may appear that the MacArthur Amendment has no effect on employer-sponsored group health plans. This, however, is not the case, because: the prohibition on annual and lifetime dollar limits, and the limitation on out-of-pocket maximums for in-network benefits only apply to essential health benefits. (The prohibition on annual and lifetime dollar limits, and the cap on out-of-pocket maximums were created by the ACA, but are untouched by the AHCA.) An employer-sponsor of a self-funded group health plan may select any state’s (or the District of Columbia’s) benchmark plan to determine which benefits in the plan are essential health benefits. So, for example, if a state is granted a waiver from the essential health benefit requirement, it appears that an employer-sponsor (located in any state) could select that state’s benchmark plan to determine which of its benefits were essential health benefits. If the state only defined essential health benefits to include hospital stays, the self-funded group health plan could impose annual and lifetime dollar limits on all outpatient care. The Upton Amendment The Upton Amendment appropriated an additional $8 billion (from 2018 to 2023) to the AHCA’s Patient and State Stability Fund. However, these additional funds are earmarked to assist individuals who may be subject to increased premiums because the individual: (1) resides in a state that was granted a waiver explained above; (2) has a pre-existing condition; (3) is uninsured
- 3. 3 because they have not maintained continuous coverage; and (4) purchases coverage in the individual market. The Upton Amendment doesn’t appear to have any direct impact on employer-sponsored group health plans, either fully insured or self-funded. And, the only indirect impact appears to be the reduction in the number of uninsured individuals, which may reduce the cost of health care charged to group health plans (i.e., because it may reduce the amount of health care providers’ uncompensated care, which providers often attempt to offset through price increases charged to others). What’s Next? Updated CBO Score The AHCA next moves to the Senate. However, the Senate will not take any action with respect to the AHCA until the Congressional Budget Office (“CBO”) releases its updated “score” on the AHCA. The CBO recently announced that this updated score wouldn’t be released until the week of May 22, 2017. The CBO’s previous score of the AHCA (before the MacArthur and Upton Amendments) didn’t paint a pretty picture of the AHCA. On the positive side, the previous score estimated a reduction in federal deficits of $337 billion over the next decade (compared to the ACA), but also estimated that 24 million more people would be uninsured in the same time period (again, compared to the ACA). The CBO’s updated score may dictate the direction of many senators with respect to the AHCA. The Byrd Rule The AHCA is a “budget reconciliation” bill. Budget reconciliation bills may be passed in the Senate with a simple majority (i.e., 51 votes), which is helpful as the AHCA has the support of few, if any, Democratic Senators. In order to pass the Senate, however, a budget reconciliation bill must comply with the Byrd Rule (named after the former Senator Robert C. Byrd). Under the Byrd Rule, the provisions of a budget reconciliation bill cannot be “extraneous” to the federal budget (i.e., outlays and revenues). A provision of a budget reconciliation bill is considered extraneous to the federal budget, in violation of the Byrd Rule, if any of the following apply: The provision does not produce a change in outlays or revenues; The provision produces changes in outlays or revenues, which are merely incidental to the non-budgetary components of the provision; The provision is outside the jurisdiction of the committee that submitted the provision for inclusion in the budget reconciliation bill;
- 4. 4 The provision increases outlays or decreases revenues, but the budget reconciliation bill, as a whole, fails to achieve the Senate’s reconciliation instructions (contained in the Senate’s budget resolution); The provision increases net outlays or decreases revenues during a fiscal year after the years covered by the budget reconciliation bill, unless the budget reconciliation bill, as a whole, remains budget neutral; or The provision contains recommendations regarding Social Security trust funds. While it is ultimately the decision of the Senate Parliamentarian (a non-partisan position) who decides whether a provision contained in a budget reconciliation bill violates the Byrd Rule, it is difficult to see how all of the AHCA’s provisions, especially those added by the MacArthur Amendment, comply with the Byrd Rule. There is a valid concern among many Republican Senators that the changes made by the MacArthur Amendment do not produce any changes—or produce changes that are merely incidental—in federal outlays and revenues. It should, however, be noted that: The Senate Parliamentarian is appointed by the Senate Majority Leader, who is currently Senator Mitch McConnell. So, if the Senate Parliamentarian determines that a provision of the AHCA violates the Byrd Rule, Senator McConnell could replace the Senate Parliamentarian. The Senate Majority has the discretion to disregard any decision of the Senate Parliamentarian. So, Senator McConnell could simply disregard any decision of the Senate Parliamentarian that a provision of the AHCA violates the Byrd Rule. At this point, however, there is no indication that Senator McConnell (or any other Senate Republicans) would rely on either of these options if the Senate Parliamentarian issues an unfavorable decision regarding the AHCA. (Doing so could have negative future consequences when Democrats next have control of the Senate.) Senate Options The Senate could pass the AHCA in its current form. It this occurs, the AHCA would next be presented to President Trump for his signature. This, however, appears to be unlikely. The Senate could also revise the AHCA. This appears to be more likely. The extent to which the Senate revises the AHCA is, however, unclear. For example, some Senators have indicated intentions to rewrite the AHCA in its entirety. If the Senate revises the AHCA, in any way, it must be returned to the House for another vote, at which point, the House could make further revisions. Because identical versions of the AHCA must pass both the House and Senate, any revision to the AHCA by either chamber of Congress requires the AHCA to be passed back to the other chamber of Congress, which is referred to as the “ping-pong” effect. To avoid (or limit the duration of) the ping-pong effect, the AHCA could, instead, be submitted to a House-Senate committee, in which
- 5. 5 members of both the House and Senate combine the House and Senate versions of the AHCA into a single version that can pass both chambers. Summary of the AHCA’s Provisions That Impact Group Health Plans Regardless of the changes made to the AHCA by the Senate, it appears that most of the AHCA’s provisions (in its current form) that impact group health plans (both fully insured and self-funded) will not be changed. Here is a summary of those provisions based on their effective date: Effective in 2016: The employer mandate penalty (a/k/a the pay or play penalty) and the individual mandate penalties are reduced to $0. Effective in 2017: HSAs, Archer MSAs, health FSAs and HRAs may be used to purchase over-the- counter medications, regardless of whether the medication was prescribed. The limitation on employee contributions to a health FSA is repealed. (Under the ACA, this limit is currently $2,600 for plan years beginning on or after January 1, 2017, and is annually adjusted for inflation.) The penalty on HSA distributions for certain non-qualified medical expenses is reduced to 10% from 20%. Increase the maximum allowable HSA contributions to be consistent with the maximum statutory out-of-pocket limits imposed on qualified high deductible health plans. For 2017, these out-of-pocket limits are $6,550 for self-only coverage and $13,100 for family coverage. Effective in 2023: The additional Medicare tax of .9% on high-wage earners is repealed. This includes an employer’s obligation to withhold this additional Medicare tax on employees with earnings in excess of $200,000. Effective in 2026: The excise tax on high cost employer-sponsored coverage (i.e., the “Cadillac tax”) takes effect. (The Cadillac tax was originally scheduled to take effect on January 1, 2018, but was delayed two years, until January 1, 2020, under the Consolidated Appropriations Act of 2016.) It is possible that the Cadillac tax is further delayed (or repealed) by future legislation. The delay of the Cadillac tax in the AHCA appears to be required to comply with the Byrd Rule.
- 6. 6 There are a number of other AHCA provisions that repeal, replace or revise the ACA. But, most of those provisions do not have a direct impact on employer-sponsored group health plans, which is why we did not discuss those provisions in this Monthly Update. Conclusion The future of the AHCA is still far from clear. As a result, we continue to recommend that employers “stay the course” with respect to ACA compliance. We will also continue to keep you updated on the progress of the AHCA, including any changes, in future Monthly Health Care Reform Updates. Questions? For more information about how these rules may affect your plan, please contact your Brown & Brown of Central Michigan consultant. 1605 Concentric Blvd, Suite #1, Saginaw, MI 48604 Toll Free: 866-421-0478