On Thursday, March 9, the U.S. House of Representatives’ Ways and Means Committee approved by a party-line vote the tax provisions in the American Health Care Act (AHCA). The AHCA is the Republican legislation to repeal and replace the Patient Protection & Affordable Care Act (ACA). On the same day the House Energy and Commerce Committee also by a party-line vote passed the AHCA Medicaid provisions. See the full text of the AHCA as made available by House leadership on Monday, March 6, 2017. House Republican leadership intends the House Budget Committee to begin considering the entire AHCA on Wednesday, March 15, and if approved, the full House to begin debate on the AHCA the week of March 20 and vote on the bill before the end of the month.  The Senate would than take up the bill and would require only 51 votes for passage under Congressional “reconciliation” rules, considering the legislation focuses on budget-related matters.  According to House Speaker Paul Ryan (R.-Wisconsin), the AHCA is the first component of a tri-partite Republican plan to reform the U.S. health care system.  The other two components are:  (i) Health and Human Secretary Tom Price will promulgate rules intended to stabilize insurance markets; and (ii) additional Republican health care reform legislation will be introduced, which could include repeal of the individual and employer mandates and enabling insurers to sell policies across state lines.  Any such legislation will require 60 votes to pass the Senate, meaning some support from Democrats will be needed.

Early this week the Congressional Budget Office is expected to provide its assessment of the cost of the AHCA, along with an estimate of the number of individuals who would lose their health insurance under the bill.  Both assessments – costs and coverage – could result in pressure on lawmakers to change the legislation.

The AHCA, as approved by the House Ways and Means and Energy and Commerce Committees, would:

(i) Eliminate the penalties for failing to comply with either the individual mandate or the employer mandate on larger companies.  The legislation would not actually repeal either mandate.

(ii) Beginning in 2019, require insurers to impose a 30 percent surcharge on premiums for individuals who purchase a new health plan after a lapse in coverage of 63 days or more.

(iii) In 2020, replace income-based premium subsidies to lower and moderate-income consumers with annual individual refundable tax credits based on age and income.  The credits would begin to phase out for individuals making more than $75,000 and joint filers making over $150,000.  For each $1,000 in income above the limits, a person would be entitled to $100 less in credits.  Credits would be limited to a maximum of $14,000 per family.  Credits could be used for any health plan permitted in a state, including plans offering only catastrophic coverage.

(iv) Insurers would be able to charge older customers up to five times what they charge younger customers, rather than up to three times as included in the ACA.

(v) Beginning in 2018, individuals could contribute up to $6,550 and families up to $13,000 to pretax Health Savings Accounts (the current limits are $3,400 and $6,750).

(vi) Beginning in 2020, states would receive $100 billion over 10 years through a new Patient and State Stability Fund for safety-net needs and possible high-risk pools for consumers with expensive medical conditions.  Under the ACA, cost-sharing subsidies are provided to insurers to help insureds cover deductibles and co-payments.

(vii) Maintain the essential health benefit categories in the commercial market but repeal the requirement that state Medicaid plans provide the same benefits.

(viii) Freeze federal funding in 2020 for states that expanded Medicaid under the ACA.   Medicaid would become a block grant tied to the size of each state’s Medicaid population.  Enhanced federal funding for new enrollees whose incomes are above the poverty line would end, and states would need to pay the difference to continue expanding their programs.  The 31 states and the District of Columbia that expanded their Medicaid programs would continue to receive enhanced federal funding until 2020.  Thereafter, the federal government would continue to pay 90 percent for beneficiaries already enrolled, provided they remain eligible.  New beneficiaries would be funded at a lower level.  The ACA mandate that Medicaid cover basic mental health and addiction in states that expanded their Medicaid programs would be eliminated.  Republican governors from the 16 states that expanded Medicaid reportedly will propose to preserve certain aspects of the Medicaid expansion.

(ix) Maintain the prohibition against insurers denying coverage based on preexisting conditions.

(x) Maintain the ability of dependents to remain on parents’ insurance plans until the age of 26.

(xi) Continue the ban on caps on annual or lifetime coverage.

(xii) Postpone from 2020 to 2025 implementation of the 40 percent tax on high-cost employer-sponsored health plans, commonly referred to as the “Cadillac” tax.  Under current law, beginning in 2020 the tax would be applied to individual coverage costing more than $10,800 and family coverage above $29,100.

(xiii) Repeal the tax on group health insurance that funds outcome research.

Conservative Republicans, including Freedom Caucus members, have expressed their displeasure over the refundable tax credits, waiting until 2020 to scale-back the Medicaid program expansion, and leaving in place the ACA’s insurance coverage mandates.  The Republican Study Committee has proposed expediting the reduction in Medicaid spending by two years, to begin in 2018 rather than 2020, and requiring able-bodied, childless adults to seek work in exchange for Medicaid benefits.  Senator Rand Paul (R.-Kentucky) introduced legislation in the Senate that would repeal the ACA without replacing it, identical to a bill that Congress passed in late 2015, which President Obama vetoed.

House Democrats thus far are united in their opposition to the AHCA.

Industry groups have generally expressed their opposition to the AHCA.  The American Medical Association in a letter to House Ways and Means and Energy and Commerce leaders explained that “We cannot support the AHCA as drafted because of the expected decline in health insurance coverage and the potential harm it would cause to vulnerable patient populations.”  The American Hospital Association expressed its concern about restructuring Medicaid from an entitlement program to a program based on a per capita allocation.  America’s Health Insurance Plans pronounced its concern over the significant change in the Medicaid program and elimination of the penalties for failing to comply with the individual and large employer mandates, which the organization believes will destabilize the insurance market.

In other news on Friday, March 10, President Trump announced that he will nominate Dr. Scott Gottlieb to be the next commissioner of the Food and Drug Administration (FDA).  Dr. Gottlieb is a partner in the venture capital firm New Enterprise Associates, a managing director of T.R. Winston & Co., a member of the product investment board of GlaxoSmithKline, and a senior fellow at the American Enterprise Institute.  He also served as a deputy FDA commissioner during the George W. Bush Administration from 2005 to 2007.