On May 4, 2017, by a vote of 217-213, the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA), which represents the House Republicans’ attempt to repeal and replace the ACA. The AHCA now heads to the U.S. Senate, where its future is uncertain.
Background on the House’s Passage of the AHCA
The AHCA was introduced in the House earlier in the year, but a prior vote scheduled in April was canceled as House Republicans couldn’t garner enough support. However, later in April and in early May, two amendments – known as the MacArthur and Upton amendments, named after their respective sponsors, Tom MacArthur (R-NJ) and Fred Upton (R-MI) – were added to the AHCA. The MacArthur amendment added state flexibility with respect to premium rating, defining essential health benefits (EHBs) and charging higher premiums or applying medical underwriting for those with pre-existing conditions (PECs) in certain situations (more on that below). Those two amendments brought additional House Republicans on board, allowing the AHCA to pass the House.
Generally speaking, the AHCA repeals the penalties associated with the ACA’s individual and employer mandates, the health insurance tax on insurers, the health FSA employee contribution limits and the prohibition on HSA/FSA/HRA reimbursements for over-the-counter (non-prescription) medications. For HSAs specifically, it increases contribution limits to match out-of-pocket maximums under the HDHP, allows reimbursements from an HSA that are incurred after enrollment in an HDHP but prior the establishment of the HSA (for up to 60 days), and allows catch-up contributions from both spouses to the same HSA. Importantly, the AHCA delays the ACA’s so-called “Cadillac tax” until 2026, creates new, refundable tax credits (based on age) as a replacement for the ACA’s premium tax credit system, and completely overhauls Medicaid. Lastly, under the MacArthur amendment, states may seek a waiver to allow insurers more flexibility in premium rating based on age (5:1 instead of the ACA’s 3:1, and in some instances even higher than 5:1).
Two issues relating to the AHCA have generated particular interest: PEC exclusions and EHBs. On PEC exclusions, the AHCA doesn’t eliminate the ACA’s prohibition on PEC exclusions, meaning insurers and plans cannot deny coverage to those with PECs. However, the AHCA allows insurers to charge higher premiums (up to 30 percent more) to anyone (including those with PECs) who allow their coverage to lapse for more than 63 days. In addition, the AHCA allows flexibility for states to waive out of community rating and instead allow insurers to medically underwrite a policy for someone with a PEC and a lapse in coverage (rather than apply the 30-percent surcharge). So while there’s a possibility that under the AHCA an individual with a PEC and lapse in coverage could face higher premiums upon enrollment in a plan (via either the surcharge or the medical underwriting), if individuals maintain coverage continuously, that possibility would not arise. For example, if an individual with cancer has group coverage through his or her employer, is terminated from employment, and continues coverage via COBRA (or through an individual plan on or off the exchange) such that he/she doesn’t go more than 63 days without coverage, his/her premiums won’t be impacted by the existence of a PEC.
On EHBs, the MacArthur amendment allows states that receive a waiver to develop their own definition of EHBs. Under the ACA, insurers and plans are prohibited from having annual or lifetime dollar limits on EHBs, and the definition of “EHB,” although defined by ACA broadly into 10 categories, was slightly different in each state. Under the AHCA, states may have more flexibility to define “EHBs.” Thus, there are some who argue that the prohibition on annual and lifetime limits on EHBs could be affected if a state is given the opportunity to totally eliminate EHBs. However, the AHCA itself doesn’t directly repeal or replace the ACA’s rules on the lifetime and annual dollar limit prohibition, and the MacArthur amendment seems to only give the states the opportunity to decide what EHBs are included within the 10 broad categories outlined in the ACA (it doesn’t seem to allow a state to deem no health benefits essential at all). As such, we believe (along with other industry experts) that the AHCA still prohibits lifetime and annual limits. Nonetheless, we hope final iterations of the bill clarify this point.
Future of the AHCA
Looking forward, it’s difficult to predict the AHCA’s fate. The bill now heads to the Senate, where Republicans would need enough votes to send it to the President’s desk. The prevailing thought is that the Senate will use the budget reconciliation process to pass the vote (thereby needing fewer votes than would generally be required to pass a bill). The provisions of a reconciliation bill generally must relate to or influence the budget, meaning they drive or otherwise impact federal revenue. Some believe a few provisions of the AHCA, including PECs, EHBs and premium rating, are extraneous to the reconciliation process — meaning they don’t impact the budget. Thus, it’s possible that those provisions could be challenged under the so-called “Byrd rule,” which could mean those extraneous provisions might ultimately be left out of the AHCA. Because House Republicans made PECS, EHBs and the premium rating such hot-button items during the House debate on the AHCA, any Senate changes (through the Byrd rule or otherwise) relating to those items could have an impact once the bill is sent back to the House with changes.
In addition, the Congressional Budget Office (CBO) hasn’t yet scored the AHCA with its recent MacArthur and Upton amendments. The original CBO scoring (of the AHCA prior to the amendments) was controversial, as it stated that up to 24 million individuals may lose health insurance coverage under the bill. The CBO scoring could have a major impact on which way Senate Republicans vote on the AHCA.
There’s also recent discussion of Republican Senators either completely overhauling the AHCA or even drafting their own repeal-and-replacement bill. If the Senate proceeds under either of those routes, their revised or new bill would head back to the House for another vote. Only time will tell how this all will play out.
Impact on Employer Plan Sponsors
Although the AHCA has gained some momentum, it’s important to note that the status quo remains until the President signs it into law. Until then, the ACA remains the law of the land. That means employers should continue their compliance efforts across the board. Among other things, that includes compliance with the employer mandate and the associated reporting. Employers should continue those efforts through tracking of hours, including any measurement periods used for variable hour or seasonal workforces. Employers should also plan to continue compliance with other ACA requirements, including PCOR and reinsurance fee payments, covering preventive services at zero cost-sharing, covering dependents to age 26 and observing PEC exclusion prohibitions.
As always, we’ll continue to monitor developments and provide updates as we move forward.
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