An Analysis of the American Health Care Act
This week, House Ways and Means Chairman Kevin Brady (R-Texas) and House Energy and Commerce Committee Chairman Greg Walden (R-Ore.) released and passed their committees’ legislative contributions to the American Health Care Act, a pair of bills to repeal and replace the Affordable Care Act.
This week, House Ways and Means Chairman Kevin Brady (R-Texas) and House Energy and Commerce Committee Chairman (R-Ore.) Greg Walden released and passed their committees’ legislative contributions to the American Health Care Act (AHCA), a pair of bills to repeal and replace the Affordable Care Act (ACA). The House is expected to move the legislation fairly easily, but the proposed plan may have a more difficult time in the Senate, where Republicans are split in support, as many were hoping for a clean repeal of ACA and not a piecemeal approach.
There was a possible scenario in which the ACA repeal and replace effort would only encompass Medicaid expansion. But, the structural changes introduced this week in the proposed AHCA would affect Medicaid more broadly.
Provisions that remain in the plan:
Unlike a full repeal of ACA, as many Republicans had hoped for, some of the key provisions from ACA have made their way into the proposed replacement plan. The plan keeps the pre-existing condition provision. However, it does so with the caveat that if there is a lapse of more than one month in health coverage before purchasing a new plan, there will be a 30 percent increase to the premium for an entire year. This money goes to the insurance company and not into any kind of subsidy to make health care more affordable. The plan also allows dependents to stay on their parents’ health insurance until age 26. Additionally, the plan keeps important ACA prohibitions against lifetime and annual limits, and against discrimination based on race, nationality, disability, age, or sex.
Surprisingly to some, the tax on high-cost health plans, also referred to as the “Cadillac Tax,” remains in the AHCA proposal. However, it is only delayed until 2025, and merely a way to ensure that budgetary adjustments suggested in this bill do not expire in 10 years. Because this repeal and replace is happening during the congressional process of reconciliation, the rules dictate that significant budget implications cannot last longer than 10 years. This is why the 2001 tax cuts, enacted by the Bush administration, basically disappeared—they were instituted through reconciliation. It seems that delaying the Cadillac Tax could provide the balance in financial numbers needed to avoid a budgetary impact after the 10-year mark, along with other factors, which means the proposed provisions in the AHCA would be more likely to endure over time.
Provisions that do not remain in the plan:
The individual mandate to purchase health insurance, if not provided by one’s employer, or be forced to pay a tax penalty is gone from the replacement plan. In its place, as mentioned previously, is the 30 percent yearlong increase on premium payments when someone purchases coverage after a one-month lapse in coverage. This is to encourage healthy individuals to purchase health coverage, to ensure a larger proportion of healthy individuals is contributing to the overall pool of money. Much like the ACA’s tax penalty, many are skeptical that a 30 percent increase will be enough to inspire the amount of young and healthy individuals needed to offset costs for the very sick in the health insurance market.
One of the most notable aspects missing from the replacement plan are the several tax codes that the ACA implemented to increase health insurance coverage, reduce costs, and finance health care reform. The proposed AHCA repeals nearly all of these provisions that are currently in the ACA:
- An additional 0.9 percent payroll tax on earnings and a 3.8 percent tax on net investment income for individuals with income exceeding $200,000 and couples with income exceeding $250,000. Nearly all families affected by the additional payroll and investment taxes are in the top 5 percent of income, with most of the burden borne by families in the top 1 percent of income. The Joint Committee on Taxation (JCT) estimates repealing these two taxes would cost $275 billion over 10 years.
- The Premium Tax Credit, a refundable tax credit to help families purchase health insurance through state and federal marketplaces. In the current heath care law, this is for tax filers between 100 and 400 percent of the federal poverty level who are not eligible for health coverage from other sources, such as Medicaid or affordable employer-sponsored insurance.
- Penalty taxes on individuals without adequate health insurance coverage and employers with 50 or more full-time employees who do not offer adequate health insurance coverage to their employees. Essentially the AHCA gets rid of the individual mandate, and the employer mandate.
- Excise taxes on health insurance providers, pharmaceutical manufacturers and importers, and medical device manufacturers and importers. These excise taxes have a similar percentage impact on after-tax income for families across the income distribution. The JCT estimates repealing them would cost $190 billion over 10 years.
All in all, rolling back the tax increases in the Affordable Care Act would reduce federal revenue by estimates of over $370 billion over a 10-year period by the Center on Budget and Policy Priorities or $574.5 billion over the period between 2017 and 2026, as estimated by the JCT. 
How does the proposed plan work?
The AHCA is not a complete overhaul of ACA; rather, it makes changes the current health care law to make it operate differently. The plan replaces the Premium Tax Credit with a new refundable health insurance credit for individuals without public or employer-provided coverage. Increasing in amount based on one’s age, the credit ranges from $2,000 (for those under 30) to $4,000 per year for individuals over 60.
Unlike the ACA’s Premium Tax Credit, which limits family contributions as a percentage of income and phases out entirely when income exceeds 400 percent of the federal poverty level, the new credit is less generous toward lower-income families.
The funding of the proposed AHCA is different from the ACA’s tax subsidies/credits provided to lower-income earners through tax revenues from earners at the top 5 percent. The proposed AHCA uses savings through capping Medicaid and freezing Medicaid expansion, the health insurance program for low-income individuals and families. Essentially, the tax cut relief on higher income earners noted previously is largely offset by savings the AHCA gains through making changes to Medicaid spending.
Medicaid and Medicaid Expansion
The proposed AHCA does not immediately strip coverage from the 11.2 million newly eligible people who have health insurance today under the ACA’s Medicaid expansion. But it effectively freezes enrollment, which would gradually unravel the expansion and could leave millions without insurance .
Prior to the ACA, eligibility to Medicaid varied widely state by state and left many populations without access to health care assistance. The ACA Medicaid expansion standardized eligibility and opened the door for millions of low-income individuals, especially childless adults, to gain health insurance. With the ACA Medicaid expansion, the law is that the federal government would provide a 100 percent match for new enrollees for the first two years and then go down to a frozen 90 percent federal match.
The proposed AHCA would freeze the expansion beginning in 2020. Although, some House Republicans want to initiate the freeze in 2018. The freeze would allow current enrollees to remain covered, but would not allow new, or people with a lapse in Medicaid coverage, to join under the ACA’s standard of 138 percent of the poverty line. States would have the choice to continue serving everyone at the 138 percent level, but that would come from their own state budgets. Many states will not be able to do this, and, in fact, some states have mechanisms built into their expansion laws that automatically ends the program if federal matching funds are reduced.
In addition to winding down Medicaid expansion, AHCA proposes a per capita cap on all federal Medicaid funds. Unlike block grants, per capita caps can adjust to changes in the marketplace slightly, but do so with a generally slow growth rate. This type of cap assigns different capitation levels to different population types, such as elderly and disabled. Significant changes to the population, such as a state with a large aging population or a boom in births, would not likely be able to stay in line with pre-determined caps.
Many sources indicate that the proposed AHCA will cause anywhere from 11 million to 20 million people to lose health insurance. “An analysis just released by the Center on Budget and Policy Priorities finds that the projected Medicaid cuts to federal funding due to the per capita cap and the limits on the Medicaid expansion would result in $370 billion in cuts in federal financing over a 10-year period. The Center estimates that $116 billion of these cuts would come from the non-expansion side of Medicaid, i.e. children, low-income parents, seniors, pregnant women, and people with disabilities. These costs would be shifted to states which would have options to raise taxes, cut other spending, or cut back on coverage and care for Medicaid beneficiaries.
In addition to structural changes to ACA, and changes to Medicaid, the Alliance is currently analyzing other parts of the proposed AHCA, such as the repeal of the Prevention and Public Health Fund, and how all of these changes impact various populations; the communities we serve, such as foster youth; and the services we provide as a network.
Every edition of the Alliance Policy Radar email update, which is sent each Friday, will feature an analysis, other articles we recommend reading, and opportunities for in collective advocacy.
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Special Analysis: Prevention and Public Health Fund Federal & State Allocations
What Does ACA Repeal Mean for Children and Families?
The GOP’s Forced March on Health Care Begins