On Thursday, May 4, 2017, the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA) by a vote of 217 to 213. The AHCA as passed includes recent amendments offered by Representatives MacArthur and Upton. The key provisions that impact every individual, healthcare provider, healthcare insurance carrier, and employer sponsoring a group health plan are explained below.
Individual Mandate Effectively Replaced
Under the AHCA, individuals would not be required to obtain health insurance or face a penalty for failing to do so. Instead, the AHCA eliminates the penalty for failing to carry insurance and provides that individuals who have a gap in coverage of 63 days or more could be assessed a 30% premium surcharge when they purchase insurance after such a gap.
Employer Mandate Essentially Eliminated
The Affordable Care Act (ACA) mandate that required employers with at least 50 employees to provide insurance to their employees or face a penalty is essentially eliminated.
Income-Based Subsidies Replaced by Age-Based Tax Credits
The AHCA also eliminates the system of income-based subsidies provided under the ACA and instead offers individuals a set of age-based tax credits to help purchase insurance. The credits start at $2,000 for individuals under 30 and go as high as $4,000 for individuals age 60 and over.
The AHCA as modified by the amendment offered by Rep. MacArthur permits states to apply for, and obtain, waivers of three key provisions put in place under the ACA: (1) the community rating rules; (2) the mandatory age rating ratio; and (3) the essential health benefits requirements. In order to obtain any of these waivers, a state must demonstrate how the waiver would achieve at least one of the following goals:
- Reduce average health insurance premiums;
- Increase health insurance enrollment;
- Stabilize premiums for people with pre-existing conditions; or
- Increase the choice of health plans in the state.
The Secretary of the U.S. Department of Health and Human Services (HHS) must act to deny a requested waiver within 60 days of submission, or the waiver is automatically approved.
Waiver of the Community Rating Rules
The ACA community rating rules require insurers to offer policies without basing their cost on the health status of the individuals buying the policies. Under the AHCA, an additional requirement applies when a state seeks a waiver of the community rating rules. The state must put in place a program to establish high-risk pools or reinsurance programs or participate in the federal invisible risk sharing program to help cover high-cost consumers. The AHCA sets aside more than $100 billion in federal funds to support such programs. The amendment authored by Rep. Upton added an additional $8 billion to the federal support.
If the required programs that protect high-risk consumers are in place, a state can allow insurers to use health status as a factor for setting premiums in the individual market for consumers who have not maintained continuous coverage. Health status rating would be used instead of the 30% late enrollment penalty that the AHCA establishes to replace the ACA's individual mandate.
Waiver of the Mandatory Age Rating Ratio
The ACA imposes a maximum ratio of 3 to 1 between the costs charged to the oldest customers and those charged to the youngest. The AHCA raises that ratio to 5 to 1 and allows states to raise it higher still if they obtain a waiver.
Waiver of the Essential Health Benefits Requirements
A state can apply for a waiver of the requirement that health insurance policies cover certain minimum benefits. The required categories of benefits include:
- Inpatient and outpatient medical care;
- Prescription drug coverage;
- Maternity care; and
- Mental healthcare.
ACA Taxes Repealed
The AHCA repeals the medical device tax and taxes on pharmaceutical companies and health insurers. The bill also delays implementation of the 40% tax on high-cost employer-sponsored group health plans known as the "Cadillac Tax" until 2025.
Medicaid Funding Transformed
The AHCA makes substantial changes to the way Medicaid is funded. The expansion of Medicaid that covered millions of people under the ACA would be gradually phased out. The federal government would shift its support for the Medicaid program to a fixed amount per Medicaid enrollee. States would also have the option to receive Medicaid funding for certain populations as a block grant instead of a per capita allocation.
The AHCA will now be considered by the Senate, where it faces an uncertain path forward. Venable's healthcare and life sciences regulatory team will continue to closely monitor the AHCA and other health law and policy developments. Look for further updates from Venable and do not hesitate to contact the Venable attorneys listed here with any questions concerning this or other healthcare matters.