Their sentiment is consistent with the limits on Republicans’ power. They simply don’t have the numbers to repeal the law in full. They’re going to attack it piecemeal, eliminating what they consider the most onerous parts of the ACA.
William G. (Bill) Stuart
Director of Strategy and Compliance
February 16, 2017
One of the benefits of being a member of the American Bankers Association (ABA) HSA Council and the National Association of Health Underwriters (NAHU), as well as an active participant in the Employers Council on Flexible Compensation (ECFC) is that I have opportunities to observe and participate in the federal legislative process. I spent much of last week and this week in the nation’s capital talking to members of Congress, their staffs and House and Senate staffs about what’s coming next in health care reform.
Here’s my report from the trenches:
The Senate won’t get to 60. While the House of Representatives is a majority-rules free-for-all institution, the Senate has created rules over time to protect the rights of the minority party. Without expanding to a full civics lesson, Senate rules require 60 of 100 senators to vote for a bill before it can proceed. Rarely does any party control 60 seats (though the Democrats did so after the 2008 election and held that total when they passed the Affordable Care Act (nicknamed ObamaCare) in March 2010 without a single Republican supporter).
Republicans control 52 seats to the Democrats’ 48 (46 Democrats and Sens. Sanders of Vermont and King of Maine, who don’t affiliate with a party but align with the Democrats). Although there was some hope after the 2016 election that some of the 10 Democrat senators up for re-election in 2018 in states that President Trump carried would join Republicans in a clean repeal-and-replacement effort, that dream has died. There simply aren’t enough of them, and even without party pressure, only five were strong candidates to back a comprehensive bill.
The bottom line is that Republican’s simply don’t have the votes that they need to repeal and replace the ACA with one comprehensive bill.
Reconciliation. The legislative focus now shifts to a process known as reconciliation. The Senate instituted reconciliation as part of a federal budget reform act in 1974. Once the Senate follows its rules to pass the federal budget at a high level (spending and revenue totals), various committees approve budgets of agencies within their jurisdiction. These budgets are rolled up into a single comprehensive federal budget. Senators then vote on the final budget. Reconciliation, which requires a simple majority rather than a supermajority of 60 votes to pass the measure, is designed to prevent a small faction from holding up the entire federal budget because they’re unhappy with some particular levels of funding of specific agencies or efforts.
Both parties have applied reconciliation to other legislation besides the federal budget. Over time, the reconciliation process has morphed into a tool to pass legislation with a simple majority vote. The caveat is that the legislation must address federal revenue and spending specifically.
Republicans plan to use reconciliation to repeal and replace key parts of the ACA. Which parts? It depends on what provisions survive a series of “Byrd baths”.
Byrd baths. The Senate adopted rules named for the late Sen. Robert Byrd of West Virginia that prevent either party from attaching provisions not related to spending or revenue to a reconciliation bill. The Byrd rule allows any senator to object to a provision on the grounds that it’s unrelated to spending or revenue.
The challenge is heard by one of the less visible people on Capitol Hill – the senate Parliamentarian, an individual who supports neither party and is responsible for ensuring that the Senate’s rules are followed. Only six people have held the post since it was created 80 years ago. The current occupant, Elizabeth MacDonough, is the first woman to occupy the office.
Ms. MacDonough’s job is to put each challenged provision through what Capitol Hill insiders dub the “Byrd bath.” Her responsibility is to determine whether the provision in question is related to federal spending and revenue enough to allow it to remain in a reconciliation bill or whether it can be considered only via standard legislation with a 60-vote majority required.
Inverting the process. The legislative process typically works like this: A bill is introduced in each chamber. Typically, one or several members of both the House and Senate introduce identical bills into their respective chambers. The bills are then assigned to committees and subcommittees with jurisdiction over the issue. The committees and subcommittees are composed of members of both parties, with the chamber’s majority party holding the majority of seats on each committee and subcommittee.
Committees and subcommittees in the House and Senate then hold hearings to gather facts. Once they have the information that they need, they “mark up the bill” – a process of proposing specific changes to the legislation based on their fact-gathering and specific priorities of individual members. If the committee approves the bill, it’s sent “to the floor,” where it faces a vote by the full body.
When a piece of legislation passes both chambers, it’s usually no longer the same bill. Each chamber has added or subtracted provisions, altered budget numbers and perhaps added unrelated provisions to the bill. In this common situation, Republican and Democrat leaders in the House and Senate form a conference committee – a small working group of legislators who go through the two bills and create one bill that they believe will pass their respective chambers.
The bill then goes back to a vote of the full membership in the House and Senate. If it passes both chambers, it goes to the president for his signature, formal veto or inaction.
Reconciliation forces Republicans to “bat out of order.” They need to do the conference committee work – ensuring that an identical bill is introduced in each chamber – before the process begins. And Republican leaders must ensure that no committee makes changes to the bill. The initial floor votes in the Senate and House must be for identical bills – every provision, word and punctuation must be identical in each chamber’s version of the bill – to ensure that it moves through the reconciliation process.
This is a tall order. Republicans in both the House and Senate must accept the bill exactly as written, with no amendments. They must defeat any amendments or changes proposed by Democrats in each chamber. If they don’t, the probability of a successful piece of legislation through the reconciliation process declines precipitously.
“Repeal and replace” or “repair and revise?” The HSA Council conducted two focus groups last month, the result of which it shared with the Republican retreat in late January. The two panels of 10 men and 10 women were asked about a variety of topics related to health care reform, the ACA and their personal coverage. They were apprehensive about repealing the ACA in its entirety because they were unsure what would follow repeal. They cited the law’s success in covering many Americans who had lacked medical insurance before passage of the ACA and voiced a preference to repair what’s not working rather than scrapping the law altogether.
Their sentiment is consistent with the limits on Republicans’ power. They simply don’t have the numbers to repeal the law in full. They’re going to attack it piecemeal, eliminating what they consider the most onerous parts of the ACA. They may then be able to secure some additional changes either through a comprehensive tax-reform bill expected later this year (through reconciliation if necessary, as the 2001 Bush tax cuts were enacted) or more constructive replacement legislation requiring 60 votes, passed whether in this session of Congress (with at least eight Democrats on board) or the 116th Congress in 2019 (if Republicans can gain a 60-seat advantage with 25 Democrat seats, including Sanders and King, and only eight Republican seats on the ballot).
What to expect before the end of April. The federal government will run out of money (spending authority) April 28. Congress will have to pass a reconciliation bill (though it may be a continuing resolution, which funds the government for a set period of time without finalizing a budget). Republicans hope to add major changes to the ACA to this bill, which will require only 50 votes rather than the 60 supermajority to pass the Senate.
The wild card is coalitions within the party itself. The Freedom Coalition in the House, a group of conservative GOP representatives, can defeat a bill if they vote as a bloc. This is possible but unlikely. In the Senate, with a fragile majority of only 52 votes and Sen. Rand Paul of Kentucky pushing hard for a market-based approach rather than what he calls “ObamaCare Light,” finding common ground among at least 50 Republicans is more problematic
Republicans appear to be coalescing around the approaches below:
- Repeal all ACA taxes, including the high-cost excise tax (nicknamed the Cadillac tax), the medical devices tax and the Health Insurance Tax that applies to employer-sponsored insured medical plans and is projected to result in a premium increase of $500 for the average family. Eliminating the taxes not only kills the key funding source for the ACA; it also lowers the baseline federal government revenue, which will aid Republicans in crafting a tax-reform measure later this year.
- Eliminate the tax/penalty for failing to purchase coverage (the individual mandate).
- Eliminate the 3.9% tax on certain income, including passive income and the sale of real estate, that hits higher income Americans.
- Retain for one or two years and then eliminate the current advance premium tax credits (premium subsidies) to which about 83% of the 10 million or so Americans who purchase nongroup insurance through public exchanges are entitled. These subsidies reduce the net premium cost to these individuals.
- Replace the premium subsidies with an age-adjusted, refundable, advanceable tax credit to allow Americans not covered by an employer, Medicare or Medicaid to purchase medical insurance. This change effectively bases the tax credit on age rather than income, since an applicant’s age drives premium costs.
- Enhance HSAs. Likely enhancements include raising contribution limits (to a much higher fixed limit or up to the medical plan out-of-pocket maximum), removing some eligibility restrictions (TRICARE coverage, utilization of VA or Indian Health Services during the past three months) and allowing individuals up to 60 days after they gain HSA eligibility to incur expenses before they open their HSAs. These enhancements are part of the content of a bill that Sen. Orrin Hatch (R-UT) and Rep. Eric Paulsen (R-MN) introduced in the 114th Congress and introduced again earlier this week.
- Possibly reform Medicaid as much as possible after a Byrd bath, although Medicaid reform may not be part of this reconciliation bill as Republicans continue to disagree on approaches to reform. Proposals include providing block grants to states rather than funding the ACA’s Medicaid expansion piecemeal from Washington and allowing states more freedom to innovate, including introducing programs with accounts similar to HSAs for the Medicaid population.
Many aspects of the ACA are unlikely to pass the Senate Parliamentarian’s Byrd bath exercises. Among the provisions of the law that are likely to remain untouched through reconciliation include:
- Maintaining the most popular provisions of the ACA, including coverage for children to age 26, community rating, no pre-existing condition clauses and guaranteed issue. These features all help to destabilize the insurance markets, but the Parliamentarian is likely to conclude that the impact is borne by private insurers rather than the government (although they indirectly impact the size of advance premium tax credits).
- Continuing the transfer of $500 billion from Medicare to the ACA.
- Maintaining the 3:1 ratio of lowest-to-highest premiums in the nongroup market. Although older enrollees incur claims equal to about six times the claims incurred by young enrollees, insurers can’t offer rates more than three times the premiums to the lowest class of applicants. In this design, young enrollees would subsidize older enrollees – except that younger individuals aren’t enrolling, and insurers are losing collectively more than $1 billion annually in nongroup markets. The Trump administration last week made what appears to be a rather clumsy attempt to revise this figure by indicating that it might take administrative action to make the ratio 3.49:1 on the grounds that 3.49 “rounds down” to 3.00, the figure in the ACA that can’t be altered except by congressional action.
- Continuing the ACA’s mandated benefit designs and coverage levels. These provisions limit choice, but those limits are on consumers who can’t buy the coverage that they choose rather than on the government. Republicans are likely to argue to the Parliamentarian that they’re germane to federal spending because many consumers prefer more catastrophic plans (lower premiums, higher out-of-pocket costs) that would result in lower advance premium tax credits.
- Maintaining risk adjustment, the program designed to help stabilize the nongroup insurance market by forcing insurers whose covered population incurs lower costs than other insurers’ to write checks to the federal government for redistribution to insurers with a poorer risk profile in their nongroup markets. This plan doesn’t involve any federal tax dollars. (Recipients of risk-adjustment payments were paid only about 12 cents for every dollar owed because the “losers” have exceeded the “winners” by a wide margin every year.) The other two components of the “Three R’s,” reinsurance and risk corridors, expired at the end of 2016.
- Continuing medical homes, alternative payment methods and other activities designed to enhance coordination of care and reform payments so that insurers continue their efforts (which began before the ACA was enacted) of paying for performance rather than mere provider activity.
Final thoughts. Reforming the ACA won’t be easy. And it won’t follow the textbook explanation of how a bill becomes a law. Democrats passed the ACA in 2010 without a single Republican supporter just as their 60-seat window in the senate closed (with Republican Scott Brown’s unexpected victory in a special election to replace Sen. Mo Cowan, a Democrat, who was appointed to the seat after the death of Sen. Ted Kennedy a year earlier).
It’s going to happen in stages. Stage 1 (outlined above) will repeal as much of the law as is allowed under reconciliation. Stage 2 likely will occur in a comprehensive tax-reform bill that will be debated later this year and may pass the Senate through the reconciliation process. Stage 3 is likely to be a bipartisan effort to pass some meaningful insurance market reforms that will attract at least 60 votes in the Senate.
At the same time, the president can take administrative action. He’s already signed an order weakening the tax-enforcement aspect of the ACA. The ACA itself gives broad powers to the executive branch to essentially “fill in the blanks” in the legislation. The Obama administration did so in a way that narrowed consumer choice and increased costs by mandating that more benefits be covered as part of a standard package.
New Secretary of Health and Human Services Tom Price, a physician and until recently a representative from Georgia, has wide latitude in redefining a number of aspects of the ACA; he has been confirmed and met with Senate leaders earlier this week. Look for him to issue a number of smaller but important changes to the law to increase the range of consumer options.
What we’re reading
What are insurers doing to manage the cost of prescription drugs? Read my guest blog at the Healthcare Trends Institute here.
Want to learn more about the Three R’s (discussed above)? Check out this brief article.
While the federal government implemented the ACA during the past seven years, Republicans offered a number of alternative programs to achieve President Obama’s goal of more Americans covered and lower growth of medical spending. Two of the most popular were offered by Price and House Speaker Paul Ryan (R-WI). You can read about their proposals here.