House GOP Replacement for Obamacare Takes Shape

Tax credits, health savings accounts, Medicaid block grants, and high-risk pools are all part of an emerging plan to replace the Affordable Care Act (ACA), which Republicans in the House of Representatives discussed in a conference meeting Thursday night.

Inside Health Policy (IHP) reported details of the plan, which is contained in a policy brief that circulated for the meeting. The policy brief says the replacement plan builds on the Better Way proposal that House Speaker Paul Ryan presented in June 2016.

While supporters of the ACA point to 20 million newly insured, record low rates of uninsured, and early signs that health indicators were improving among those who gained coverage, the House GOP document casts "Obamacare" in dark terms: it says patients in 21 states saw premium hikes of 25% or higher, and one-third of all counties and 5 states have just 1 insurer on the exchange.

The plan calls for repealing taxes associated with the ACA, including those on premiums, prescription drugs, medical devices, and what it calls the “medicine cabinet tax,” aka those over-the-counter drugs that could no longer be purchased with flexible spending accounts. While the policy brief fills in some details not seen the Better Way proposal, several financing elements are unclear, and there is no information on what it would cost typical families in different income brackets.

Both the individual mandate and employer mandate would go away, but the plan seeks to discourage people from dropping coverage by making the market less hospitable to those who try to return after a break in coverage. This would align with a proposed rule change from HHS, which tightens up special enrollment period requirements and cuts the 2018 open enrollment window in half. Insurers have said abuse of special enrollment periods, in particular, has caused the risk pool on the exchanges to be burdened by too many sick people, including some who buy coverage only when they learn they are ill, only to drop it later.

According to IHP report, the House GOP still plans to use the budget reconciliation bill as the vehicle for stripping out the unwanted pieces of the ACA. But replacement measures would be added, which the brief details. Elements include:

• Universal Tax Credits. A new section of the tax code would be created, which would outline credits for all citizens or qualified aliens not offered other health coverage. The credits would not be based on income, and it would be portable, advanceable, and “refundable,” meaning that if a household’s tax liability was not high enough to collect the entire credit, the balance could be applied to a health savings account (HSA). Tax credits cannot be used to fund plans that cover abortion.  
• New Age Ratings. House Republicans seek to lower the cost of coverage for young adults and increase costs for those nearing Medicare eligibility. However, older Americans will receive a higher tax credit to reflect the higher cost of coverage. Credits are available to families still covering children up to age 26.  
• Health Savings Accounts. The plan would increase maximum HSA limits, allow both spouses to make “catch-up” contributions, and create a 60-day window for establish an HSA after the start date for a high-deductible plan; HSA dollars used to cover medical expenses from this period would be excluded from gross income as a payment for a qualified medical expense.  
• Repeal Medicaid Expansion. After a transition period, states who continue to offer Medicaid to adults up to 138% of the federal poverty level would be paid traditional match rates, not the 90% rate of the ACA. Medicaid would be converted to a per-capita block grant system, which the House GOP brief says will give states flexibility and not treat them as “junior partners” in the program.  
• Add Back Hospital Funding. As the ACA expanded Medicaid, it pulled back on funds for disproportionate share hospitals, which serve high numbers of poor and uninsured patients. Hospitals have demanded that if the ACA goes away, these funds be restored. In states that did not expand Medicaid, the loss of these funds has crippled some hospitals.

The plan seeks a return to a system of high-risk pools–a step that experts say will require a rethinking of how they functioned before the ACA. As Drew Altman of the Kaiser Family Foundation wrote recently, performance of these pools was “anemic” and very few individuals with complex conditions who needed them were covered, in part because the pools often excluded preexisting conditions for up to a year.

To address this, the House GOP brief calls for state “innovation grants,” and “next-generation” high-risk pools, which would give states flexibility in figuring out how to use funds to reduce out-of-pocket costs and improve access to preventive services.

The policy document says grants could also be used to “lower the cost of providing care to high utilization patients,” without offering specifics. It is unclear if this or any other part of the House GOP plan seeks to promote or discontinue less visible parts of the ACA that move the healthcare system away from fee-for-service to value-based care.