Industry Insights

A Checkup on Health Care Reform

September 2017
Author:  Julia Dengel

Julia Dengel

Senior Associate II

Tax

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Health care reform is back in the news with Senate Republicans evaluating whether they can build enough support before the end of September to pass the Graham-Cassidy proposal. Republican Sens. Lindsey Graham, Bill Cassidy, Dean Heller and Ron Johnson recently wrote the proposal. Before discussing what’s happening and what may occur in the coming months, we’ll explore what’s happened thus far in 2017 regarding health care reform efforts.

Health Care Reform First

On the road to tax reform, the White House and House Republicans first set out to repeal and replace the Affordable Care Act (ACA). Eliminating ACA taxes is a common theme in both the tax reform proposals of U.S. President Donald Trump and House Republicans, and doing so through health care reform—rather than through tax reform legislation—would provide an easier path for tax reform efforts. The latter would likely require offsetting revenue raisers, an automatic sunset provision or a tax increase effective at the end of the budget window for tax reform legislation to advance using budget reconciliation procedures. Repealing these taxes outside of tax reform legislation would provide more flexibility to lower income tax rates within the current proposals without bipartisan support.

With this as a backdrop, a fiscal year 2017 (FY 2017) budget resolution was passed on January 13, 2017, to facilitate the passage of health care reform legislation under the budget reconciliation rules in the Senate. The FY 2017 budget resolution, which expires at the end of September, means the Senate only needs a simple majority of 51 votes for the legislation to advance and avoid filibuster. However, an important limitation to the budget reconciliation rules is that a 60-vote supermajority is necessary to approve provisions that lose revenue beyond the budget window—typically 10 years.

Passage in the House

With a path to health care reform paved with the budget resolution, the American Health Care Act of 2017 (AHCA) was introduced on March 6 to the House by the House Ways and Means Committee and House Energy and Commerce Committee. After being put on hold while building support for the bill, the AHCA passed in the House on May 4, albeit by a narrow 217-213 margin. As the year’s first major milestone for health care reform, the bill included many features that would repeal a majority of the revenue provisions encased within the ACA. Specifically, the bill calls for a repeal of both the 3.8 percent tax on net investment income and 0.9 percent additional Medicare tax on wages and self-employment earnings.

The bill also eliminates the individual mandate, which is the shared responsibility penalty for failing to maintain minimum essential health care coverage for individual taxpayers. For businesses, enactment of this bill would provide a repeal of the 2.3 percent tax on the sale price of taxable medical devices. The employer mandate—a shared responsibility penalty for failing to provide minimum essential health care coverage for applicable larger employers—also would be eliminated. For a more detailed breakdown of the most significant provisions within the AHCA, see our March 2017 article, “Proposed Tax & Other Changes in the American Health Care Act.

Reps. Tom MacArthur and Fred Upton proposed two key updates in the final version of the bill. The MacArthur Amendment allows states to apply for a waiver from the federal government, which would grant them the opportunity to “opt out” of many provisions of the health care law. One such opt-out provision is the possibility to charge consumers based on age and pre-existing health conditions. As a direct response to the MacArthur Amendment, the Upton Amendment called for the creation of the Patient and State Stability Fund on behalf of those states deciding to take advantage of the opt-out provisions within the MacArthur Amendment. The fund is designed to help curtail the costs for consumers with pre-existing conditions.

According to the Congressional Budget Office (CBO), when compared to the current health care law, the AHCA is estimated to reduce the deficit by $119 billion over 10 years, while leaving 23 million more people uninsured.

Efforts to Pass Senate Bill Stalled in August

After the AHCA passed the House, it was the Senate’s turn to develop its own version of the bill. Although the option to simply consider and pass the House’s version was technically on the table, lawmakers opted to draft a separate Senate version of the bill given the negative public reaction to the CBO’s AHCA estimates. On June 22, after approximately two months of work, the 13-member group tasked with drafting the bill released a discussion draft version of the Better Care Reconciliation Act (BCRA). Although the bill contained many aspects that echoed campaign promises touted by Senate Republicans in recent years, the BCRA had its fair share of naysayers among the group. The discontent primarily stemmed from the idea that the BCRA wasn’t doing enough to repeal the ACA. The table below summarizes the key differences and similarities between the ACA, AHCA and BCRA.

Even after multiple proposed amendments and revisions to the BCRA, Republican senators were unable to reach a consensus surrounding the legislation and, ultimately, the bill failed to come to a vote. The CBO estimates the bill’s most recent version would increase the number of uninsured Americans by 21 million. In light of the Senate’s inability to agree on a repeal-and-replace amendment to the House’s AHCA bill, the Obamacare Repeal Reconciliation Act of 2017 (ORRA) was proposed in mid-July. The CBO projected the ORRA would ultimately leave 32 million more people uninsured. This amendment, which called for a full repeal of the ACA without an immediate replacement, didn’t have the support necessary for passage and was ultimately abandoned July 26.

In a last-ditch effort before the August recess, the Health Care Freedom Act was introduced July 27. Commonly called the “skinny repeal” bill, it would effectively repeal three aspects of the ACA:  the individual mandate, employer mandate and 3.8 percent net investment income tax. Despite essentially being a stripped-down version of the House’s AHCA, the Senate was unable to push this skinny repeal through, and the bill failed July 27.

Current Health Care Reform Efforts

Now that we’re caught up on what’s been happening—or not happening—with health care reform, let’s review what’s transpiring now. The Graham-Cassidy proposal is the latest effort to accomplish health care reform. It comes in the form of a substitute amendment to the AHCA with little time to act, as the budget resolution allowing these efforts to advance using only a simple majority expires September 30. The Graham-Cassidy proposal:

  • Repeals the individual and employer mandates and the medical device tax under the ACA
  • Gives states the ability to waive ACA regulations
  • Provides states with equitable block grants to create their own health care systems
  • Offers protection for patients with pre-existing medical conditions

Senate Finance Committee Chair Orrin Hatch announced September 18 the committee will hold a hearing September 25 to consider the prognosis of passing the Graham-Cassidy proposal by September 30. While both House Speaker Paul Ryan and the White House have shown support for the proposal, the timeline is short to accomplish what has thus far been an elusive goal for the 115th U.S. Congress.

If the past few months are any indication of what’s in store for health care reform, passing a bill in the Senate under the FY 2017 budget resolution before month-end will be no easy task. Keep an eye on BKD’s Tax Reform Resource Center for insight into what happens next week and to stay apprised of health care and tax reform efforts.

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