After a month of spirited efforts to accommodate the disparate interests of the Freedom Caucus and the Tuesday Group, Amendments offered by Representatives Tom MacArthur (R-NJ) and Fred Upton (R-MI) facilitated the hurried House passage of H.R. 1628 – – the American Health Care Act of 2017. Passed as a “reconciliation bill” (more on that later), the House voted 217-213 on May 4, 2017, to dismantle the Affordable Care Act (ACA) and make sweeping changes to the nation’s health care system.

The American Health Care Act (AHCA) now heads to the Senate where it faces similar challenges because of the same ideological splits between conservative and moderate Republicans that nearly killed H.R. 1628 in the House. In an era when Twitter messages frequently serve to set the stage for political discourse, Senator Lindsey Graham’s (R-S.C.) tweet following the House vote succinctly sets the stage: “A bill — finalized yesterday, has not been scored, amendments not allowed, and three hours final debate — should be viewed with caution.” So, while Republican Senators are likely to rewrite their own version of the bill, this eleventh article in our series on the effect of the “slow repeal” of the ACA unpacks the “amended” version of the AHCA, and offers our initial insights on what is likely to occur next as the “upper chamber” takes up the bill.

The exact impact the AHCA will have on the federal budget and on the number of insured Americans will come into clearer focus when the nonpartisan Congressional Budget Office (CBO) “scores” the bill. The ratings and analytics firm S&P Global Ratings previously estimated that as many as 10 million Americans could lose coverage if this bill becomes law, saying that between 2 million and 4 million people could lose the insurance they purchased in the individual health exchanges under the ACA, and between 4 million and 6 million could lose their coverage under Medicaid. We begin our update with a review of the AHCA, as amended.

What’s in the “Amended” AHCA?

Repeal the ACA subsidies. The AHCA would eliminate the ACA subsidies, which are refundable tax credits based on a person’s income and cost of coverage in their area. More than 8 in 10 enrollees on the ACA exchanges receive this assistance, but individuals making more than $47,500 and families of four earning more than $97,200 do not qualify. This occurs in 2020.

Provide refundable tax credits based on age and income instead. The AHCA will issue refundable tax credits to help people afford coverage on the individual insurance market, but these credits will be based mainly on a person’s age.

The AHCA credits will range from $2,000 for 20-somethings to $4,000 for those in their early 60s. The credits will also have an income cap. Those making more than $75,000 would see their tax credits start to phase out, and an enrollee making more than $215,000 would no longer be eligible. Families with incomes above $150,000 would see their credits dwindle, while those earning more than $290,000 would no longer qualify. This occurs in 2020.

Ceding details for bigger tax credits for older Americans to the Senate. The AHCA sets aside roughly $85 billion in funding to provide additional tax credits to help older people buy policies on the individual insurance market. House Republicans are letting the Senate handle the crafting of the legislation. Even before the CBO “scores” the revised bill, organizations like the AARP are warning that many older consumers could face huge premium hikes under the AHCA because its tax credits are not as generous as the ACA’s subsidies for lower-income enrollees in their 50s and early 60s.

Repeal the individual and employer mandates. The AHCA deletes the ACA requirement that people must have health coverage or face a tax penalty. It also eliminates the requirement that employers with at least 50 employees provide health insurance to their workers.

Under the ACA, these companies were required to provide affordable insurance to staffers who work more than 30 hours a week, or face a penalty if they did not meet this criteria and their employees sought subsidies on the exchanges. These provisions take effect retroactively to 2016.

Put in place a continuous coverage requirement instead. The AHCA allows insurers to impose a 30% surcharge on the premiums of those who let their coverage lapse for at least 63 days. This would enable insurers to levy this surcharge for one year, but it would only apply to policies bought in the individual or small group insurance markets.

States seeking waivers could replace this provision with one that allows insurers to charge consumers who’ve had a gap in coverage based on their health status.

Pre-existing conditions and lapse. The AHCA retains the ACA requirement for insurers to offer coverage to those with pre-existing conditions. Insurers would still be required to offer policies to those with pre-existing conditions, but they could charge them more if consumers let their coverage lapse.

Pre-existing conditions – allow states to obtain waivers to let insurers charge consumers more if they have pre-existing conditions. States can get waivers allowing carriers to set premiums based on enrollees’ medical backgrounds under several circumstances. Those enrollees would have to have let their coverage lapse, and the state would have to set up a risk program — such as a high-risk pool — that, in some cases, could provide help to those being charged higher premiums. The Upton Amendment allocates an additional $8 billion over 5 years to States that receive waivers, with the stated purpose to help bring down costs for insuring enrollees’ pre-existing conditions.

Children under age 26 may remain on their parent’s policies. AHCA retains the ACA provision, which has helped insure young adults. By one estimate, 7 million people get coverage as a result.

Essential Health Benefits – Allow states to seek waivers of the federal requirement that insurers cover 10 Essential Health Benefits. States could seek waivers that would allow insurers to sell plans that do not include all the services mandated by the ACA.

Under the ACA, carriers must provide outpatient care, emergency services, hospitalization, maternity, mental health and substance abuse, prescription drugs, rehabilitation services, lab work, preventative care and pediatric services (Essential Health Benefits).

The AHCA’s sponsors believe this could lower premiums somewhat and give consumers a wider choice of plans. However, if the healthcare industry’s tepid response is any indicator (see below), there is widespread concern that it would also make it harder for people to buy comprehensive coverage and weaken the protections for those with pre-existing conditions.

Patient and state stability fund. The AHCA originally set aside $100 billion through 2026 for states to lower consumers’ and insurers’ costs in a number of ways. Among them: offering financial assistance to high-risk patients, reducing the cost of providing coverage in the individual insurance market, promoting access to preventative services as well as dental, vision, maternity, mental health and substance abuse services, and helping people reduce their out-of-pocket costs.

The revised bill added $15 billion to the stability fund for 2020 for states to cover maternity, mental health and substance abuse services, and then another $15 billion to create so-called invisible high risk pools to help insurers handle high-cost policyholders.

At the last minute (literally 7:30 p.m. on May 3, 2017), the Upton Amendment added another $8 billion over five years to support high-risk pools in states that seek waivers to opt out of two key ACA insurance provisions.

Repeal cost-sharing subsidies to lower deductibles and co-pays. The AHCA deletes the additional help that individuals earning less than roughly $30,000 a year receive to cover their out-of-pocket costs. More than half of the enrollees on the ACA exchanges receive these subsidies. This occurs in 2020.

Delay the Cadillac tax. The AHCA keeps but delays the controversial Cadillac tax, which calls for imposing a 40% excise tax on generous employer health insurance plans. Originally scheduled to go into effect in 2018, the ACA would have taxed employers on any premiums that exceed $10,200 for individual policies and $27,500 for family plans. The AHCA now delays its implementation until 2026.

Loosen the age-band so insurers can charge older enrollees more. Under the ACA, insurers could only charge older enrollees three times more than younger policy holders. Now the AHCA widens that band to five-to-one, which would hike premiums for those in their 50s and early 60s, but reduce them for younger enrollees. Also, states would be allowed to seek waivers to allow insurers to charge older consumers even more than five times the premium charged to younger consumers.

Revamp Medicaid funding. The AHCA would send the states a fixed amount of money per Medicaid enrollee, known as a per-capita cap. The CBO’s scoring of the original version of the AHCA estimated that the AHCA would reduce Medicaid funding by $839 billion over the next decade.

Medicaid Block Grant. States could also opt to receive federal Medicaid funding as a block grant for the adults and children in their program. Under a block grant, states would get a fixed amount of federal funding each year, regardless of how many participants are in the program.

States, however, cannot opt to receive block grant funding for elderly and disabled participants. Their federal support for those groups would still be based on enrollment.

Either option would limit federal responsibility, shifting that burden to the states. For states that do not have the money to make up the difference, patient advocates are already sounding the “rationing” alarm bell, predicting that states would likely reduce eligibility, curtail benefits or cut provider payments. The block grant would be more restrictive since the federal funding level would not adjust for increases in enrollment, which often happens in poor economic times.

End enhanced federal funding for Medicaid expansion. The AHCA ends the enhanced match rate for Medicaid expansion for new enrollees starting in 2020. Those already in the program could stay as long as they remain continuously insured. States that have not already expanded would not be allowed to do so, starting immediately.

Allow states to institute work requirement for Medicaid. States now have the option of requiring able-bodied Medicaid recipients to work, participate in job training programs or do community service. Pregnant women, children under the age of 19, single parents of children under age six and single parents of children with disabilities are exempt. It is estimated there are approximately 11 million “childless adults” (able-bodied single people eligible to work).

Give most New York counties relief from Medicaid payments. The AHCA added a provision that would ban the federal government from reimbursing New York State for Medicaid funds raised by counties outside of New York City. The upstate counties and Long Island send $2.3 billion to the state to help pay for Medicaid. The AHCA gives the state the incentive to stop passing down Medicaid costs to the counties, though NY state officials say it would mean fewer people would be covered and benefits would have to be curtailed.

Restore federal support for hospitals that cover many uninsured patients. The AHCA restores Medicaid Disproportionate Share Hospital payments in 2018 for states that did not expand Medicaid and in 2020 for states that did. Under the ACA, these funds were set to disappear by 2020 since the original law called for all states to expand Medicaid.

Create more generous Health Savings Accounts. The ACHA seeks to allow more people to save money for health care expenses and includes several provisions aimed at making Health Savings Accounts (HSA) more attractive. The annual contribution limits are pegged to the maximum sum of the deductible and out-of-pocket expenses one would pay in a high-deductible insurance plan. So the limit would be at least $6,550 for an individual and $13,100 for a family in 2018.

HSAs and over the counter drugs. The ACHA deletes the previous prohibition on paying for over-the-counter medications with funds from tax-advantaged accounts, such as HSAs and flexible spending accounts. And it reduces the penalty from 20% to 10% if funds from an HSA are used for non-medical purposes. This occurs in 2018.

Ban excess tax credits from going into Health Savings Accounts. Enrollees whose tax credits exceed the cost of their premiums would not be able to put the additional funds in Health Savings Accounts.

Lift contribution caps on flexible spending accounts. The ACA caps annual contributions to flexible spending accounts based on cost of living figures. For 2017, that cap was $2,600. The AHCA would do away with that limit as of December 31, 2017.

Offer two tax cuts for the wealthy – one immediately the other in 2023. The AHCA eliminates two taxes imposed by the ACA on higher earners originally aimed at helping to pay for the ACA: The 3.8% tax on investment income and the 0.9% Medicare payroll tax on incomes over $200,000 for individuals and $250,000 for married couples who file jointly. The investment income tax would disappear in 2017, but the Medicare payroll tax would remain until 2023.

Repeal the taxes on health insurers, prescription drug makers and medical devices. The AHCA deletes the annual tax ACA imposed on drug makers and health insurers and would terminate the 2.3% excise tax on the sale of certain medical devices. The tax ends in 2017.

Delete tanning tax. The AHCA eliminates the 10% tax on indoor tanning services. This occurs in 2017.

Repeal the tax break for health insurance executives’ pay. The AHCA deletes the ACA provision that placed a $500,000 limit on deductions for each executive’s compensation. Top insurers pay their leaders millions in compensation every year so this provision could mean a significant tax savings for the companies. This occurs in in 2017.

Reduce the income threshold for deducting medical expenses. Under the AHCA, taxpayers would be able to deduct medical expenses that exceed 5.8% of their adjusted gross income. The ACA had raised the threshold to 10%. This occurs in 2017.

Defund Planned Parenthood. In keeping with the compromises reached with the Freedom Caucus, the AHCA prohibits federal funding for Planned Parenthood. But the restriction is only for a year.

Eliminate support for CDC Prevention and Public Health Fund. The AHCA would eliminate nearly $1 billion in funding for this program, which Republicans call a slush fund. The Centers for Disease Control says the money supports heart disease and stroke prevention, immunization, lead poisoning prevention and diabetes prevention, mostly through grants to states and local programs, and the American Medical Association and the American Nurses Association are particularly opposed to this provision.

Increase funding for community health centers. The AHCA would provide an additional $422 million this year for community-based outpatient facilities that provide health services — such as medical, dental and mental health — to lower-income populations.

Allow insurers to sell plans that cover less of the costs. The ACA created four tiers of coverage, each with a requirement to cover a certain share of policyholders’ costs, on average. The AHCA eliminates this rule. Presumably, insurers would be able to offer plans with higher deductibles and co-pays. But since the AHCA does not lift the cap on out-of-pocket expenses, insurers could not require consumers to pay more than that for covered services. The deductibles for many bronze-tier plans are already pegged to that cap.

Annual and lifetime limits for Essential Health Benefits. Prior to the ACA, many insurers in the individual insurance market had caps on how much they would cover each year or over an enrollee’s lifetime. Some would not pay anything after an enrollee’s care costs more than $500,000 or $1 million. The ACA banned those limits for Essential Health Benefits. However, insurers may cap payments on treatments not covered by the policy.

Retaining out-of-pocket maximums. The AHCA retains the ACA out-of-pocket maximum for in-network providers and for Essential Health Benefits. For 2017, the maximum is $7,150 for an individual and $14,300 for a family. This limit does not apply if one goes to an out-of-network doctor or hospital or receives a treatment not covered by the policy.

No Healthcare Industry Support

Over 50 organizations oppose the AHCA. The list includes nurses, doctors, hospitals, teachers, churches, and more. Excerpts from their statements follow:

AARP: The AHCA would weaken Medicare, leaving the door open to a voucher program that shifts costs and risks to seniors. Before people even reach retirement age, big insurance companies could be allowed to charge them an age tax that adds up to thousands of dollars more per year. Older Americans need affordable health care services and prescriptions. The ACHA goes in the opposite direction, increasing insurance premiums for older Americans and not doing anything to lower drug costs.

American Medical Association: The AHCA does not align with the health reform objectives that the AMA set forth in January to protect patients. While the ACA is imperfect, the current version of the AHCA is not legislation we can support. “Nothing in the MacArthur Amendment remedies the shortcomings of the underlying bill.”

Blue Shield of California: The chief executive officer of Blue Shield of California, the largest insurer on the California insurance marketplace, issued a blunt critique of the GOP health care bill, saying it would once more lock Americans with preexisting conditions out of affordable coverage.

Paul Markovich said the AHCA is “flawed” and “could return us to a time when people who were born with a birth defect or who became sick could not purchase or afford insurance.” Markovich said “it’s a moral imperative” to guarantee coverage regardless of medical history. “The discrimination, whether on price or just on the ability to access insurance at all on preexisting conditions, is unconscionable. As a country, we are better than that,” he said.

American Hospital Association & Federation of American Hospitals: Any changes to the ACA must be guided by ensuring that we continue to provide health care coverage for the tens of millions of Americans who have benefitted from the law. We are pleased that so many in Congress also recognize the need to preserve patient coverage. Any ability to evaluate The American Health Care Act, however, is severely hampered by the lack of coverage estimates by the Congressional Budget Office (CBO). Lacking that level of analysis and needed transparency, we urge that Congress should wait until an estimate is available before proceeding with formal consideration.

American Nurses Association: “The new bill is an even further departure from our principles.”

American Cancer Society Cancer Action Network: The AHCA retains key patient protections prohibiting insurers from charging more based on health status and prohibiting pre-existing condition exclusions. However, these protections are hollow if patients and survivors can’t afford insurance that covers the health care services they need to treat their cancer diagnosis.

American Health Care Association (AHCA): Long term care providers across the country are disappointed that cuts to Medicaid are included in the AHCA. The current Medicaid system underfunds nursing center care by $22.46 per day, resulting in a shortfall of nearly $7 billion annually. The AHCA will sharply reduce Medicaid funds across the board for all beneficiaries, making it harder than ever to maintain access to care for the most vulnerable in our society.

National Physicians Alliance:  The AHCA drastically cuts Medicaid, coupled with the substantial reductions in subsidies that helped millions afford healthcare would be extremely detrimental to our patients. Also, the AHCA shifts huge costs onto working families, forcing many to pay more for worse coverage and push millions of American off of health coverage entirely. All the while, the AHCA hands millionaires, billionaires and health insurance CEOs a massive new tax break.

Catholic Health Association of the United States: Strongly opposed to the AHCA “Repeal and Replace” legislation that asks the low-income and most vulnerable in our country to bear the brunt of the cuts to our health care system. In addition to moving away from an effective coverage expansion that has provided health care to more than 20 million working people, this proposal would also take many backward steps in the continual effort to improve our health care system.

WHAT’S NEXT?

It is important to remember that the AHCA is a “reconciliation bill.” So, while this legislation affects one-fifth of our nation’s economy, and an as of yet “unscored” number of Americans currently receiving their insurance through the ACA, the AHCA can only be protected against filibusters (i.e., passed by a simple majority in the Senate), if it satisfies the so-called “Byrd Rule”. The Byrd Rule requires that all measures in the bill must be pertinent to the federal budget, a determination made by the Senate parliamentarian — an unelected official who solely decides whether the AHCA satisfies the reconciliation process, or whether any of the provisions must be stripped.

In addition to seeking the parliamentarian’s sign-off, Senate Majority Leader Mitch McConnell (R-Ky.) issued a statement that the Senate will also await the completion of the CBO’s budgetary scorekeeping review before the Senate takes up the bill. This process could be particularly important for Senators concerned about the impact on Medicaid funding (including Republican Senators Shelley Capito (R-W.Va.), Tom Cotton (R-Ark), Cory Gardner (R-Co.), Dean Heller (R-Nev.), Lisa Murkowski (R-Ala.) and Rob Portman (R-OH.), who have already voiced concerns about “stability for Medicaid expansion populations”).

We also expect that the market reactions — and not just the provider community — will impact the Senate reconciliation process. Already, Aetna announced on May 2, 2017, that it would significantly reduce its participation in the exchanges in 2018 (coming on the heels of Aetna’s decision to drop out of 15 states in 2017).

Finally, we envision substantial gubernatorial input on the reconciliation process, particularly from those states that chose not to expand Medicaid under the ACA.