Jesse Oberloh, GBA May 11, 2017 17 min read

Legislative Brief: House of Representatives Passes American Health Care Act

On Thursday, May 4, by a vote of 217 to 213, the U.S. House of Representatives passed an amended version of the American Health Care Act (AHCA), which repeals and replaces significant portions of the Affordable Care Act (ACA).

Bill Heads to Senate for Further Consideration

This bill comes several weeks after U.S. House of Representatives’ Speaker Paul Ryan pulled the AHCA from the floor once it was clear that, at that time, the bill was short on votes to pass. In large part, the original bill failed because the more conservative wing of the Republican Party, known as the Freedom Caucus, was against the bill because of its preservation of certain ACA provisions.

For employers, the most significant change the AHCA makes to the ACA is to repeal the employer mandate penalties effective January 1, 2016. Other significant changes for employers are unlimited flexible spending accounts, and enhancements to health savings accounts (HSAs). For individuals, the most significant changes include the repeal of the ACA’s Medicaid expansion and its premium subsidies and cost-sharing reductions for low-income individuals. Higher-income individuals would see relief from various ACA taxes and fees, including the 0.9% Medicare surtax beginning in 2023 and the 3.8% net investment income tax retroactive to the beginning of this year.

The AHCA has been amended several times since its introduction. There are two Manager’s amendments (containing Technical and Policy changes), the MacArthur amendment, and the Upton amendment.

The MacArthur amendment establishes a “Federal Invisible Risk-Sharing Program” and allows states to submit applications to the Secretary of Health and Human Services to modify certain ACA requirements, such as the essential health benefits standard and age rating restrictions. States would also be permitted to waive the

AHCA’s 30 percent premium surcharge for individuals who seek to re-enroll after failing to maintain continuous coverage, defined as a lapse of 63 days or more over the previous 12 months; however, insurers would be able to underwrite based on health status when there has been such a lapse (generally for up to 12 months). For employers, this may mean again having to issue certificates of creditable coverage. The Upton amendment would add an additional $8 billion to state risk pools, which are intended to help individuals with pre-existing conditions obtain coverage in states where community rating is not mandatory.

There was also a companion bill (H.R. 2192) that passed the House along with the AHCA, which eliminates the waiver option in the MacArthur amendment for members of Congress. The bill ensures that members of Congress and their staff are treated the same as other individuals in a state that receives a MacArthur amendment waiver.

Summary of Key Changes

The chart below summarizes some of the significant changes made by the AHCA.

	Affordable Care Act (ACA)	American Health Care Act (AHCA)
Mandates	Individual mandate Employer mandate on applicable large employers (ALEs)	No individual or employer mandate effective retroactive to Jan. 1, 2016 Insurers can impose a one year 30% surcharge on consumers with a lapse in continuous coverage (individual and small group market)
Assistance	Income-based subsidies for premiums that limit after-subsidy cost to a percent of income Cost sharing reductions for out-of-pocket expenses	Age-based refundable tax credits for premiums, phased out for higher incomes No cost sharing reductions for out-of-pocket expenses ACA subsidies phased out after 2019; AHCA credits effective in 2020
Medicaid	Matching federal funds to states for anyone who qualifies Expanded eligibility to 138% of poverty level income	Federal funds granted to states based on a capped, per-capita basis starting in 2020 States can choose to expand Medicaid eligibility, but would receive less federal support for those additional persons
Premium Age Differences	3:1	5:1 (and the MacArthur amendment would allow a higher ratio)
Health Savings Account Limits	$3,400/$6,750	Contribution limits increased to maximum out-of-pocket limit for HDHP coverage $6,550/$13,100 (effective retroactively to Jan. 1, 2017)
“Cadillac” Tax	Cadillac tax on high-cost employer plans implemented in 2020	Cadillac tax on high-cost employer plans delayed until 2026
Other Taxes	3.8% tax on net investment income Limit placed on contributions to flexible spending accounts Annual health insurance provider tax Over-the-counter medication excluded as qualified medical expense 0.9% Medicare tax on individuals with an income higher than $200,000 or families with an income higher than $250,000	Repeal of these taxes retroactive to the beginning of 2017 (except for the repeal of the Medicare tax, which would begin in 2023)
Essential Health Benefits	Individual and small group plans are required to offer ten essential health benefits	Under the MacArthur amendment, individual and small group plans are required to offer the ten essential health benefits, but a waiver option is available Some Medicaid plans are not required to offer mental health and substance abuse benefits
No Change: No Pre-Existing Condition Exclusions / Coverage of Children to Age 26 / No Annual or Lifetime Dollar Limits on Essential Benefits

MacArthur Amendment

The following chart summarizes the changes made to the AHCA by the MacArthur amendment.

Insurance Market Provisions

The MacArthur amendment:

Reinstates Essential Health Benefits (EHB) as the federal standard (removes ability of states to define EHBs, but see waiver option)
Maintains the following provisions of the AHCA:
- Prohibition on preexisting condition exclusions
- Prohibition on discrimination based on gender
- Guaranteed availability and renewability of coverage
- Coverage of adult children to age 26
- Community Rating rules (but see waiver option)

Limited Waiver Option

States may obtain waivers from certain federal standards, in the interest of lowering premiums and expanding the number of enrollees. States could seek waivers from:

Essential Health Benefits (states could set their own definition of EHBs for the individual and small group markets starting in 2020, and increase the age rating ratio above 5:1 starting in 2018)
Community rating rules, except for the following categories, which are not waivable:
- Gender
- Health Status (unless the state has established a high-risk pool or is participating in a federal high risk pool)

Limited Waiver Requirements

States must explain how the waiver will benefit the insurance market in their state, such as reducing average premiums, increasing enrollment, stabilizing premiums for individuals with pre-existing conditions, or increasing the choice of health plans. Applications are automatically approved within 60 days unless denied by HHS.

Limited Waiver Option

The limited waiver option in the MacArthur amendment was necessary to secure the votes of the Freedom Caucus. It has been criticized as potentially allowing states to waive out of the prohibition on pre-existing condition exclusions by allowing underwriting based on health status for those who experience a gap in continuous coverage, which in effect temporarily raises the cost of coverage for individuals with pre-existing conditions. It remains to be seen whether the AHCA’s high risk pools and invisible risk-sharing program contain enough funding to offset these potential premium increases.

Next Steps

AHCA has yet to be scored by the Congressional Budget Office. It will now go to the Senate where significant changes are expected in order to secure passage. In addition, it is not clear that as currently drafted it will meet the requirements to qualify for a simple majority vote under the Senate’s budget reconciliation rules. Provisions that have no budgetary impact may be removed and AHCA’s tax policies may be required to have sunset dates so that they do not increase deficits outside of the budget window (typically, 10 years). It may take months before any final legislation is passed and the AHCA may get stalled again as changes will have to go back to the House for approval. Employers and other stakeholders should stay the course on ACA compliance at this time while they continue to monitor for changes as the AHCA continues to make its way through the legislative process.

Jesse Oberloh, GBA

Jesse capitalizes on his 15 year background in risk management and account services to develop benefit programs for employers in a way that improves the overall health and productivity of the workforce. He is an expert in alternative funding methods for insurance including self-funded, limited funded and captive plans. By staying well informed on the latest industry trends, Jesse is able to provide proactive and strategic solutions for benefits clients. Prior to joining Hausmann-Johnson Insurance, he was Manager of Member Services at The Alliance, as well as an Account Executive at an insurance company. He is a member of the Wisconsin Association of Health Underwriters and participates in local community chambers and SHRM chapters. Jesse graduated from the University of Wisconsin-Madison with degrees in Finance & Investments, Risk Management & Insurance, and Human Resources Management. He proudly supports Badger Football and is a 15-year season ticket holder. He loves spending time up north at the family cabin fishing with his children or sneaking in a round of golf whenever possible. He also coaches his son’s Verona flag football and little league baseball teams.

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Legislative Brief: House of Representatives Passes American Health Care Act

Jesse Oberloh, GBA

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