Summary of American Health Care Act, As Passed by the House
Congress Reaches Appropriations Deal for FY2017
“CREATES” Legislation with Generic Drug Reforms Introduced
President’s Tax Reform Proposal Has Mixed Effect on Health Items

Summary of American Health Care Act, As Passed by the House

(Incorporates all House amendments as of May 4, 2017)

Medicaid

  • Limits the Medicaid expansion in 2018 by prohibiting enrollment of further expansion population; Limits reimbursement and ends in 2020
  • Moves Medicaid to a per-capita cap
    • Per-capita cap based on enrollee categories: elderly, blind and disabled, children, non-expansion adults, and expansion adults
    • Per-capita cap funding starts in FY2020, with FY2016 spending used to set base target spending in FY2019. Cap adjusted annually by consumer price index.
  • Allows work requirements in Medicaid
  • Gives states option of block grant

Exchanges

  • Includes $115 billion over 10 years for Patient and State Stability Fund
  • Creates Federal Invisible Risk Sharing Program (FIRSP) with $15 billion through 2026
  • Allows states to submit a waiver application to HHS, which is approved within 60 days unless HHS provides a reason for denial.
    • Waivers allows states to:
      • Increase the age rating ratio above the underlying bill’s 5:1 ratio beginning 2018;
      • Specify their own essential health benefits beginning 2020; and,
      • Replace the underlying bill’s continuous coverage incentive’s late-enrollment penalty with health status rating beginning 2019, conditional upon the state operating a risk mitigation program or participating in a Federal Invisible Risk Sharing Program (FIRSP).
      • (Health status rating may not be waived for individuals who maintain continuous coverage.)
    • States must explain how their waiver will provide one or more of the following:
      • Reducing average premiums for health insurance coverage in the state;
      • Increasing enrollment in health insurance coverage in the state;
      • Stabilizing the market for health insurance coverage in the state;
      • Stabilizing premiums for individuals with pre-existing conditions; or
      • Increasing the choice of health plans in the state.
    • Approved waivers may be in effect for up to 10 years as long as the state maintains its risk-sharing program. Health insurance issuers are prohibited from discriminating on rates for health insurance by gender or by limiting access to health coverage for individuals with preexisting conditions.
    • For states granted a waiver on community rating, an additional $8 billion is available from the Patient and State Stability Fund in 2018 to 2023 to provide assistance in reducing premiums or other out-of-pocket costs for individuals who may face higher monthly premiums because they have a pre-existing condition and have not maintained continuous coverage.

Taxes

  • Exchange Tax Credits: Changes tax credits for purchasing insurance through exchanges to fixed credits based on age and income, not affordability. Allows credits to be used on a wider range of insurance plans. This provision takes effect in 2020.
  • Repeals other ACA Tax Provisions in 2017, including:
    • Individual Mandate
    • Employer Mandate
    • Medical Device Tax
    • Health Insurance Tax
  • Delays Repeal of Additional Medicare Tax Increase to 2023

This version of the American Health Care Act has not received a CBO score.

Congress Reaches Appropriations Deal for FY2017

This week, Congress is expected to pass an omnibus appropriations bill for the remainder of FY2017, which ends on September 30, 2017 (bill text and section summaries are available from the Senate and House). The legislation passed the House on May 3rd, by a vote of 309 to 118, and Senate action is expected by Friday. The agreement comes after Congress passed a stopgap bill last week, as the previous Continuing Resolution expired on April 28th. This agreement includes funding updates to numerous health programs. On the Affordable Care Act (ACA), the bill is notable for what it includes and excludes.

The biggest health headline from the funding agreement is an additional $2 billion ($34.1 billion overall) for the National Institutes of Health (NIH), which continues to enjoy bipartisan support. Funding for addressing opioid abuse was included across several programs, providing an increase of $650 million ($801 million overall). Community Health Centers will receive the same funding level as FY 2016 ($1.49 billion). Overall, the Department of Health and Human Services will receive $77.7 billion in discretionary funding, a $2.7 billion increase from FY2016 (this number does not reflect mandatory spending through programs such as Medicare).

The agreement continues to restrict funding for some ACA components. The Independent Payment Advisory Board (IPAB), will continue to be unfunded. The Risk Corridors program for insurers participating in the ACA’s exchanges will continue to operate in a budget neutral manner, prolonging insurer frustration on the issue. Absent from the agreement is a resolution to the cost-sharing reductions issue, which insurers have sought to resolve before submitting rates or announcing their participation in the exchange markets for 2018. Democrats sought legislative certainty that these payments would be made but instead the administration provided some assurances on the issue. In addition, the bill also does not prohibit Medicaid funding for Planned Parenthood clinics, which some Republicans had sought to restrict in the bill.

Furthermore, the bill does not include funding for the President’s priority to build a border wall on the Mexican-American border. However, it does include $1.5 billion in additional funds for border security. In addition, defense spending was increased by $15 billion, lower than the President had requested.

With FY2017 funding completed, Congress will now turn its focus toward FY2018 appropriations. The President is expected to release a full budget proposal in May, building on his budget blueprint from March. For FY2018 budget negotiations, the President is likely to more forcefully push for his priorities on defense spending and building the border wall, threatening a September shutdown in two tweets. However, votes from Democrats are needed in both chambers to pass appropriations legislation, making the President’s demands difficult to meet. Before Congress deals with FY2018 funding by October 1, 2018, it must approve an increase in the debt ceiling later this summer or fall, which could prove to be a difficult fight in Congress. Congress may also pass a FY2018 budget resolution that could lay the legislative groundwork for tax reform.

“CREATES” Legislation with Generic Drug Reforms Introduced

On April 27, 2017, S. 974, the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act (text and summary) was reintroduced by Sen. Patrick Leahy (D-VT) along with 11 bipartisan cosponsors, including Judiciary Committee Chair Chuck Grassley (R-IA), Ranking Member Dianne Feinstein (D-CA), Subcommittee on Antitrust, Competition Policy, and Consumer Rights Chair Mike Lee (R-UT), and Ranking Member Amy Klobuchar (D-MN). Companion legislation was introduced in the House as H.R. 2212 by Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law Chair Tom Marino (R-PA) and Ranking Member David Cicilline (D-RI).

The legislation seeks to address a specific barrier to generic drug market entry. Risk Evaluation and Mitigation Strategies (REMS) with Elements to Assure Safe Use (ETASU) are required for drugs that may be abused, but some contend that these restrictions can be abused by manufacturers to prevent generic competition from obtaining samples needed to prove equivalency for the FDA approval process. The bill does not directly modify REMS with ETASU, but creates the opportunity for generic drug companies to seek legal remedies.

The legislation was previously introduced in the 114th Congress but did not advance out of committee. The Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights held a hearing on the issue on June 21, 2016. While the bill has bipartisan support from a range of champions on drug pricing issues, it may have difficulty advancing on its own in the absence of a larger drug pricing legislative proposal. If it does pass, it is likely to have all stakeholder concerns addressed in advance.

President’s Tax Reform Proposal Has Mixed Effect on Health Items

On April 26, 2017, the Trump administration unveiled its tax reform proposal. The broad strokes of the proposal were detailed by Treasury Secretary Steven Mnuchin and National Economic Council Chair Gary Cohn in a press conference and accompanied by a one-page document outlining the proposal (document via CNN). The proposal focuses on simplifying taxes for individuals and businesses by reducing tax deductions to lower overall rates. While the effects of reducing taxes on health care companies is straightforward, the health policy effects of the proposal on individual taxes could be multifaceted, particularly considering the health-related tax policy proposals that have been offered in Congress since the passage of the Affordable Care Act (ACA).

Notably, the plan does not directly address the ACA’s tax provisions, which the administration and some in Congress expect to be addressed in legislation repealing and replacing the law. These taxes encompass individual taxes (such as on investments and additional payroll taxes for high earners), business taxes (such as the medical device tax), and taxes affecting insurance (such as the Advance Premium Tax Credit and health insurance tax).

In the President’s proposal, the standard deduction for individuals and families would be doubled in exchange for removing all other deductions except charitable giving and mortgage interest. This reform may affect Republican efforts to restore the tax deduction for high medical bills to its pre-ACA threshold. The ACA increased the threshold for deducting high medical bills to 10 percent of income, and Republicans have sought to return the threshold to 7.5 percent. However, if the standard deduction is increased, some filers may find the standard deduction to be more generous than itemizing deductions and including medical bills. Under the President’s plan, the deduction could also be eliminated entirely. It is also unclear how tax advantaged accounts may be affected, such as Flexible Spending Accounts, Health Savings Accounts, and Health Reimbursement Arrangements. These accounts have been a frequent source of interest in Congress, and Republicans have sought to roll back or modify changes made by the ACA.

Finally, the President’s tax reform proposal does not propose removing the tax exclusion for employer-sponsored coverage contributions, which some have argued could be used to fund tax or health reform. In 2016 CBO estimated that the federal tax exclusion for employer health coverage will cost $3.62 trillion in tax revenue over 10 years.

In the coming weeks, look for the administration to work to build stakeholder support for its tax reform proposal. The White House will also seek consensus with the Senate and House before working to advance legislation.