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Senate Vote on Graham-Cassidy-Heller-Johnson Bill Possible Next Week
Last week, Senators Lindsay Graham (R-S.C.), Bill Cassidy (R-La.), Dean Heller (R-Nev.), and Ron Johnson (R-Wis.) introduced the latest iteration of their reconciliation bill to repeal and replace key provisions of the Affordable Care Act (ACA). Unlike previous bills, the Graham-Cassidy-Heller-Johnson bill focuses on converting the ACA’s health care expenditures into a block grant called the “Market-Based Health Care Grant Program” until 2026, when federal funding would end.
The bill would also fundamentally reform the Medicaid program by applying per capita caps. We are again faced with a highly fluid situation, and a bill that might evolve in order to attract the last Senate votes needed for passage as a reconciliation measure.
This bill amends the prior reconciliation bill (H.R. 1628) that was debated in July and failed to pass with “no” votes from Senators John McCain (R-Az.), Lisa Murkowski (R-Alaska), and Susan Collins (R-Me.). At the end of that process, Senate Majority Leader Mitch McConnell returned H.R. 1628 to the Senate calendar, leaving the door open for the Senate to take up repeal and replace again before the end of September.
Financial and Coverage Outlook
The Congressional Budget Office (CBO) has announced that it will provide a preliminary assessment of the bill early next week, focusing only on budgetary projections. The CBO will not, however, be able to estimate the bill’s effects on the deficit, health insurance coverage, or premiums for at least several weeks.
At present, there are no CBO estimates on this bill, but other organizations, including consulting firms, think tanks, and journalists that are largely critical of repeal-and-replace initiatives have published their estimates of the outlook for funding and coverage under the bill. Overall, there would be a significant reduction of federal health care funding provided to the states in excess of $200 billion dollars between 2020 and 2026. After 2026, the expiration of the Market-Based Health Care Grant Program would cause a significant further drop in federal health care spending.
The financial impact would be greatest for states that expanded their Medicaid programs under the ACA and successfully expanded enrollment in Medicaid and subsidized Exchange plans. California would likely be the hardest hit, losing an estimated $27.8 billion in 2026 alone (Center for Budget and Policy Priorities) and losing an estimated total of $61.7 billion (Kaiser Family Foundation) or $78 billion (Avalere Health) from 2020 through 2026. The estimated loss for California rises to $129 billion when 2027 is included and to $800 billion through 2036. Texas, on the other hand, would gain $35 billion in funding from 2020 through 2026 according to Avalere’s analysis.
The Graham-Cassidy bill would (1) eliminate the ACA’s Medicaid expansion, which would be temporarily and partially replaced by the “Market-Based Health Care Grant Program” from 2020 through 2026, (2) reform federal Medicaid financing to a per capita cap model starting in 2020, and (3) allow states to apply for block grants for certain Medicaid populations. Both the House-passed American Health Care Act and the failed Senate Better Care Reconciliation Act included similar per capita caps and block grants, and our analyses of these bills can be found here and here.
While the bill would initially base annual funding adjustments on the medical component of the consumer price index (CPI), beginning in fiscal year 2024 most of the annual funding adjustment would be based on the all-urban CPI that historically has increased at a much slower rate than the medical CPI.
The bill also limits retroactive Medicaid coverage to the second month before the month of application for most beneficiaries, and permits (although does not require) states to redetermine eligibility every 6 months or such shorter period as the state may elect. Prior bills required eligibility to be redetermined every 6 months, which some states projected would have the effect of substantially reducing Medicaid enrollees as many individuals would simply fail to reapply.
The bill would permit states to impose work requirements for non-disabled, nonelderly, nonpregnant individuals as a condition of Medicaid eligibility.
The bill substantially reduces provider taxes that would be matched by federal funds. Currently provider taxes may not exceed 6% of the provider's revenues. The 6% threshold is reduced each fiscal year beginning 2021 by 0.4 percentage points until it reaches 4.0% in fiscal year 2025. This could substantially reduce federal Medicaid funding for a number of states.
Market-Based Health Care Grant Program
The Graham-Cassidy bill would eliminate federal funds for the ACA’s Medicaid expansion, exchange subsidies (premium tax credits and cost-sharing reduction payments), Basic Health Program (an alternative to premium tax credits and cost-sharing reduction payments), and small business tax credits as of January 1, 2020. All of these ACA programs would then be temporarily replaced by the Market-Based Health Care Grant Program from 2020 through 2026. After 2026, there would be no further funding for the Market-Based Health Care Grant Program, absent congressional intervention.
The formula for distributing the Market-Based Health Care Grants would evolve from year to year, but it would significantly disfavor states that expanded Medicaid under the ACA.
In 2020, funding would reflect a baseline of ACA expenditures in four consecutive calendar quarters prior to 2018, trended forward using an update factor. In 2026, funding would be calculated as $190 billion (the total appropriation in that year) multiplied by the ratio of the state’s population with incomes between 50 and 138 percent of the federal poverty level to the national population in this income bracket. This amount would be reduced proportionately if the amount allocated to the states exceeds the $190 billion appropriated.
In each year between 2020 and 2026, the state’s allotment would be incrementally adjusted away from the 2020 baseline amount and toward the 2026 amount. In each of these years, the state would receive the previous year’s allotment adjusted by one sixth of the difference between the 2020 baseline amount and the 2026 amount. For example, if a state’s 2026 amount (based solely on its population with incomes between 50 and 138 percent FPL) was 12 percent lower than the state’s 2020 baseline amount (based on ACA funding), the state would be allotted roughly 98 percent of its baseline amount in 2021, 96 percent in 2022, 94 percent in 2023, 92 percent in 2024, and 90 percent in 2025 before falling to 88 percent in 2026.
Various adjustments to these allocations would be phased in between 2021 and 2026. First, between 2021 and 2023, a clinical risk adjustment would be phased in. The clinical risk adjustment would be based on the risk profile of the state’s low-income population and could modify the state’s allotment by up to 10 percent. Second, beginning in 2024, an adjustment based on the proportion of the state’s low-income population that does not have sufficient coverage (based on the actuarial value of a CHIP benchmark plan). Third, HHS could apply an adjustment for non-clinical risk factors that affect health care expenditures in a state.
After 2026, the bill provides no further funds for the grant program, so there would be no ongoing replacement for the repealed ACA safety-net programs.
Individual and Employer Mandates
Like the AHCA and the BCRA, the Graham-Cassidy-Heller-Johnson bill would repeal the individual and employer mandates retroactive to 2016. While previous repeal-and-replace efforts attempted to replace the individual mandate with alternative penalties for breaks in coverage (e.g., a 30 percent premium surcharge or a 6-month lock out period), this bill currently includes no such provision. States, however, could seek waivers enabling plans to vary premiums based on a number of factors, likely including the maintenance of continuous coverage.
Commercial Market Reforms
The Graham-Cassidy-Heller-Johnson bill would allow states to waive a number of ACA provisions with respect to coverage provided by a health insurance issuer that is receiving funding under a state’s Market-Based Health Care Grant Program or provided to an individual receiving a direct benefit under a state’s Market Based Health Care Grant Program. States could waive the ACA’s premium rating provisions, permitting issuers to vary premiums based on health status or other factors (other than sex or membership in a protected class). This could result in individuals with preexisting conditions facing unaffordable premiums in states with such waivers in place. States would also be permitted to waive essential health benefit requirements, permitting issuers to offer narrower benefits packages that might exclude maternity, prescription drug, and other benefits that are currently considered to be essential health benefits on the individual and small group markets. Lastly, states could waive the medical loss ratio rule, which requires rebates to be issued when a plan’s ratio of claims expenditures to premiums falls below 80 percent.
These waivers to premium rating requirements for pre-existing conditions and other factors, essential health benefit requirements, and to the medical loss ratio would be eliminated after the Market-Based Health Care Grant Program expires in 2026. As a result, absent congressional action, all of the ACA’s market reforms would then be in effect without the individual mandate, the ACA’s affordability programs, or any replacement scheme.
The bill also would broaden enrollment in catastrophic plans starting in 2019. Currently, enrollment in catastrophic plans is restricted to individuals under 30 years of age and those with hardship or affordability exemptions.
Lastly, the bill has a number of provisions that would liberalize rules for health savings accounts (HSAs). For example, it would allow HSA funds to be used for over-the-counter medications, would reduce the excise tax for non-qualified HSA expenses, allow for payment of high-deductible health plan premiums with HSA funds, and the use of HSA funds for periodic fees for primary care service arrangements. The bill would also prohibit the use of HSA funds to purchase a high-deductible health plan that offers abortion coverage.
The bill would also prohibit, for one year, any payments to Planned Parenthood, its affiliates, and other tax exempt, essential community providers that provide abortions other than to preserve the life of the mother or in cases of rape or incest. This prohibition would last for one year from the date of the bill’s enactment.
Unlike previous repeal-and-replace efforts, this bill does not repeal the bulk of ACA taxes. It would, however, repeal the medical device tax.
As we noted at the outset, the situation is highly fluid. There are ongoing negotiations within the Republican caucus in an effort to secure 50 votes, and there likely will be changes to the Graham-Cassidy-Heller-Johnson Bill before any vote. A CBO score is also expected early next week, and it may influence the debate and the content of the final bill. If this bill is to be considered as a reconciliation bill, it likely will need a final vote by September 30, 2017.
We will continue to monitor this process, and provide updates and analysis as appropriate.
For additional information, please contact Lloyd Bookman or John Hellow in Los Angeles at 310.551.8111; Mark Reagan or Katrina Pagonis in San Francisco at 415.875.8500; or James Segroves, Keith Fontenot or Martin Corry in Washington, D.C. at 202.580.7700.Back to listing