05.11.2017

|

Updates

On May 4, 2017, the U.S. House of Representatives approved the American Health Care Act (AHCA) by a vote of 217 to 213 (with 20 Republicans voting against the bill), sending the AHCA to the Senate. As we have reported in prior updates, the AHCA repeals and replaces large portions of the Affordable Care Act (ACA). This update describes what changed in the final version that was passed by the House, the implications of the final version for employer-sponsored plans and what happens next. 

Amendments to AHCA Garner House Vote

The two most recent amendments to the AHCA that passed the House cover two areas. The first permits states to obtain waivers or opt-out from the “essential health benefits” requirements of the ACA and to opt-out of community rating in setting premiums, thereby permitting higher premiums based on health status in the individual market (“MacArthur Amendment”). The second amendment allocates $8 billion over five years, $1.6 billion per year, of additional funding for states opting out of community rating to provide premium or out-of-pocket cost assistance to individuals experiencing higher premiums as a result of the waiver (“Upton Amendment”).

The MacArthur Amendment helped with conservative support for the AHCA (i.e., the House Republican group known as the “Freedom Caucus”), while the addition of funds to help individuals with pre-existing conditions in the Upton Amendment  broadened support among Republicans for passage. Notably, both amendments are concerned with the individual market for health insurance, but both have implications for employer-sponsored plans.   

Permitted State Waivers. The MacArthur Amendment would allow states to request a waiver to opt-out of the ACA’s essential health benefits package starting in 2020, and, starting in 2018, would allow an increase in the age-based variance of the premium rate charge by a health insurance issuer to an amount specified by the state. The current rate ratio under the ACA for adults is three to one. The MacArthur Amendment would also permit states to request a waiver, starting as early as 2018 for special enrollment periods, to allow plans to underwrite based on the health status of an enrollee if he or she has not complied with the AHCA’s continuous coverage provision. In other words, if an individual cannot demonstrate that he or she had coverage for all but 63 days of the prior 12 months, insurers would be permitted to vary premiums based on health status in a state that had opted out of community rating. (Note that this is in addition to the initial legislation that would impose the 30% premium surcharge for individuals who fail to maintain continuous coverage.) If a state seeks such a waiver, it must have a high-risk pool or reinsurance program. The MacArthur Amendment also would require states to attest that the purpose of either of these waivers conforms to one of five approved purposes, such as to reduce average premium costs in the individual market.     

Implications for Employer-Sponsored Group Health Plans. Under the ACA, large employer-sponsored group health plans are prohibited from imposing lifetime or annual dollar limits on the value of any essential health benefits they offer. Currently, each state has its own definition of essential health benefits, and self-insured plans, fully-insured large group health plans and grandfathered group health plans can use any state’s definition, or benchmark, of what qualifies as an essential health benefit (unlike small fully-insured group health plans, which have to comply with their own state’s standards). 

If a state eliminates or substantially narrows its definition of “essential health benefits,” an employer could use that state’s benchmark plan and apply the prohibition on lifetime and annual dollar limits only to those benefits that fall under the narrower definition of essential health benefits. This may also mean increased out-of-pocket expenses for participants in these plans because out-of-pocket maximums, and other cost-sharing limits, only apply to essential health benefits. If a plan uses a benchmark from a state that eliminates essential health benefits, there would effectively be no benefits to which out-of-pocket maximums and other limits would apply. It is unclear whether employers would actually adopt such plan designs, but it may be an option for reducing an employer’s overall spending on health coverage costs.

Note that the MacArthur Amendment did not have an impact on the delay to 2026 of the 40% “Cadillac Tax,” the elimination of employer shared responsibility penalties or the HSA expansion provided by the original AHCA prior to amendment, as we have previously discussed.

$8 Billion for Individuals With Pre-existing Conditions. The Upton Amendment provides a fund of $8 billion over a five-year period to provide states that opted out of community rating “assistance to reduce premiums or other out-of-pocket costs” of individuals who, as a result of such opt-outs, may be subject to an increase in cost-sharing or monthly premium rates. According to many analysts, the $8 billion fund is inadequate for high-risk pools alone, and even conservative analysts estimate that at least $15 to $25 billion would need to be allocated for such pools to be effective. For comparison, the temporary high-risk pool, created by the ACA for the 3-1/2 year period preceding implementation of the ACA’s prohibition on pre-existing condition exclusions, exhausted its $5 billion in funding earlier than expected and had to curtail new enrollment before the program ended. 

What Happens Next

It now falls to the Senate to advance the AHCA. Republicans are attempting to pass the bill through a special legislative procedure under the Congressional Budget Act of 1974 called reconciliation. Reconciliation enables Congress to pass legislation that changes only federal spending and revenues—and only such legislation—under quicker procedures. For example, Senate debate time is limited to 20 hours, amendments must be germane to the budget, and—critically—the filibuster is not available. Because Republicans hold 52 Senate seats, reconciliation allows the AHCA to pass without any Democratic votes.

For all its procedural advantages, reconciliation has a catch called the Byrd Rule, which provides that reconciliation is to be used solely to pass budget-related legislation, and thus any provision of AHCA that does not affect federal spending is vulnerable to being struck.

Under the Byrd Rule, any Senator may raise a point of order to object to an AHCA provision that is “extraneous” to the federal budget. If the presiding chair agrees that the provision violates the Byrd Rule, it will be struck. It would take 60 votes to waive the Byrd Rule and reinsert the challenged provision. This process, sometimes called a “Byrd bath,” means that any AHCA provision that does not directly affect the outlays and revenues of the federal budget may be challenged and struck from the AHCA before it passes the Senate. Examples of provisions that could fall under a Byrd bath are the 30% insurance premium surcharge that would replace the individual mandate, the provision permitting insurance companies to charge older customers premiums that are five times higher than premiums for younger customers, the ban on spending any tax credit to purchase a healthcare plan that covers abortion and the waivers permitting states to opt-out of essential health benefits and community rating.

If the Senate makes any changes to the AHCA, whether because of the Byrd bath or its own amendments, it will go to a “conference committee” of House Representatives and Senators, who will attempt to craft a compromise that will have to pass both chambers again before heading to the president’s desk for signature. We will update you with further AHCA developments as they emerge.  

© 2017 Perkins Coie LLP


 

Sign up for the latest legal news and insights  >