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August 7, 2017

Health Care Reform: A Postmortem (article)

CBIZ is monitoring health care reform.Health care reform has been a Republican mission for seven years that culminated in campaign promises and legislative tumult. After a recent flurry of Senate floor votes and Congress gone for its August recess, it appears for now that efforts to repeal and replace the Affordable Care Act have failed. What went wrong?

Broadly speaking, when examining failed legislation one can attribute it to three general categories. A bill can fail for policy reasons, which generally means that a bill fails to gain enough support because of its content. It can also fail for procedural reasons, which include delay tactics (such as a filibuster) and noncompliance with the rules of budget reconciliation. Finally, politics are a common cause of death. Politics is the broadest category and can include anything from the results of vote trading, bowing to pressure from internal or external interests, responding to unfavorable polls, feedback from constituents, and simple personal relationships.

This week we will examine the American Health Care Act (AHCA), the Better Care Reconciliation Act (BCRA), the Obamacare Repeal Reconciliation Act (“repeal and delay”), and the Health Care Freedom act of 2017 (“skinny repeal”) to determine the most likely cause of death for each. The analysis will include a short recap of each measure’s major provisions, the applicable CBO score, and the reasons that each measure fell short.


Summary: The House of Representatives passed the AHCA in May after negotiating changes to an earlier version that had insufficient support. The AHCA would have eliminated the individual and employer mandates by setting the penalty to $0. In lieu of the mandates, insurers would have been able to increase premiums by 30 percent for any individual who had a lapse in coverage for more than three months. Tax credits to purchase insurance on the marketplace would have been reduced and were primarily based upon age instead of income levels and the cost of coverage. Also, under the bill, insurers would have been able to charge elderly individuals five times more than younger ones, instead of the current three to one ratio.

The AHCA also would have allowed states to effectively permit insurers to refuse coverage to those with preexisting conditions, or to change the items that are considered essential health benefits. Medicaid funding expansion provided by the ACA would have been curtailed sharply as well, with a transition to an alternative block grant system. The sizable Medicaid cuts were to be used as the means to repeal the ACA’s medical device tax, the 3.8 percent Net Investment Income Tax (NIIT), and the 0.9 percent Additional Medicare surcharge. The Cadillac Tax on certain health plans would have been further delayed until 2026. On the other hand, HSA and FSA accounts would have been expanded under the AHCA.

The CBO Score: The CBO projected that by 2026 the AHCA would increase the number of uninsured by 24 million versus current law. The report also predicted a short term increase in the cost of premiums before a gradual decline, as fewer sick and elderly obtained or retained coverage.  The law also would have provided the government a savings of $337 billion over that 10-year period.

Likely Cause of Death: Policy and politics each contributed. The AHCA did not receive a favorable reception from the public. The perception, encouraged by Democrats, was that the bill was a tax cut for wealthy individuals at the expense of coverage for the poor and lower middle class. This motivated the Senate to set the bill aside in favor of a new proposal that they would draft.


Summary: Though the Senate committed to drafting its own legislation, the resulting BCRA was similar to the House’s AHCA, with some important differences. Both measures would have repealed the mandates, but the BCRA proposed a six-month waiting period for individuals with gaps in policy coverage instead of the AHCA’s proposed premium increases. However, the Senate Parliamentarian ruled that this provision did not meet the budget reconciliation rules. Unlike the AHCA, the BCRA aimed to preserve the ACA’s tax credits for insurance plan costs, though the eligibility for such credits was to be further restricted.

The BCRA followed the AHCA’s proposed Medicaid cuts, albeit through a slower transition. It also went a step further than the AHCA in cutting long-term Medicaid funding by introducing a restrictive inflation index that would slow the growth of block grant funding over time. The BCRA also would not have permitted states to allow insurers to wholly refuse coverage for preexisting conditions, or to waive coverage of essential health benefits. However, insurers would have been allowed to sell certain plans that did not include these protections so long as comprehensive plans were also offered. On the other hand, the bill would have followed the AHCA in allowing insurers to charge the elderly five times as much as younger individuals.

For tax purposes the biggest difference between the BCRA and the AHCA was the preservation of the ACA’s taxes. Both the NIIT and the additional Medicare surcharge would have been preserved through the BCRA.  The bill proposed to follow the AHCA in its further delay of the Cadillac tax implementation.

The CBO Score:  The CBO predicted that 22 million more individuals would have no coverage by 2026 when compared to current law. As with the AHCA, the BCRA would have brought short-term increases in insurance premiums with lower long-term premiums. The BCRA also would have provided more deficit reduction with an estimated savings of $420 billion over 10 years.

Likely Cause of Death: The primary objections to the BCRA appeared to be based upon policy concerns. Moderate Senators were opposed Medicaid cuts, while conservatives were unhappy that the law did not go far enough to repeal the ACA’s regulatory structure. Procedural concerns also hampered the BCRA with the removal of the six-month waiting period clause. The BCRA failed by the widest margin of the three bills that the Senate voted on the week of July 26.

Repeal and Delay

Summary: The repeal and delay bill was actually a measure that passed both chambers of Congress in 2015, but was vetoed by President Obama. The 2015 vote had political and procedural underpinnings. Procedurally, the goal was to determine how much of the ACA could be repealed under the budget reconciliation process. The $0 penalty strategy used by the BCRA and AHCA to eliminate the employer and individual mandates is one example borrowed from the 2015 vote. The 2015 vote was also intended to send a loud message of the legislature’s political will to reform health care.

The current repeal and delay measure would have eliminated the premium tax credit beginning in 2020, and would have required repayment of any excess credit paid to taxpayers regardless of income. Further, the ACA protections for people with preexisting conditions and for essential health benefits would have remained in place.

Repeal and delay also would have meant the end of the Medicaid expansion for those states that elected to participate. It also would have repealed all of the ACA taxes except the Cadillac tax, which would have been further delayed to 2026. Overall, repeal and delay was meant to roll back as much of the ACA as possible while not requiring a 60-vote threshold in the Senate. The replacement delay was meant to give Congress time and motivation to craft workable legislation.

The CBO Score:  Because the replacement part was not determined under the proposal, this measure received the harshest CBO score. The CBO predicted that 32 million individuals would lose coverage and that premiums would double by 2026. The report predicted that repeal and delay would save the government $473 billion over a 10-year period.

Likely Cause of Death: Politics, procedure and policy all played roles. The underlying coverage losses and premium increases created by the policy of repeal made the bill politically unpalatable once it became clear that a Republican president would most likely not veto the bill. And these policy decisions were driven by the procedural rules of budget reconciliation.

Skinny Repeal

Summary: As the name implies, “skinny repeal” was designed to only repeal a small portion of the ACA. The measure’s major proposed changes were the elimination of the individual mandate and an eight-year pause on the employer mandate. The bill would not have eliminated or changed the Medicaid expansion, the ACA taxes, or the ACA premium tax credits.

The CBO Score: The CBO score for skinny repeal predicted an additional 15 million uninsured individuals versus current law. It also predicted a 20 percent increase in premiums, though it was not clear if the increase was cumulative or if it was a 20 percent increase per year. The CBO also projected that it would provide $225 billion in government savings.

Likely Cause of Death: Procedure combined with politics eliminated this version. It was not clear whether skinny repeal had sufficient support in the House, or if it was a mechanism to get to a conference committee so that the House and Senate could work together to draft a more comprehensive repeal and replace package. In the end, confusion over the process and the politics of the unfavorable CBO score metrics made the bill unpalatable to the three Republican Senators -- Lisa Murkowski (R-AK), Susan Collins (R-MN) and a recovering John McCain (R-AZ) -- who joined with the Democrats to defeat the bill in a dramatic post-midnight Senate vote.

While the future of health care reform remains in limbo, a reflection on the outcomes of these measures may help to understand what it might take procedurally and politically to accomplish health care reform.  For more information on the repeal and replace efforts, please contact your local CBIZ tax professional.

Copyright © 2017, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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