On May 4, 2017 the House of Representatives passed the American Health Care Act (AHCA) by a near party-line vote of 217 to 213. The AHCA was first introduced in the House on March 6, 2017 in response to the long-standing promise by Republican members of Congress to repeal the Affordable Care Act.

The AHCA, however, does not repeal the ACA. It does not touch the provisions of six of the ACA’s ten titles dealing with Medicare payment, quality, and care delivery reforms; fraud and abuse; workforce reform; biosimilars; prevention; or many other issues. The original AHCA did not even address many of the ACA’s core insurance reforms. It did not, for example, modify the ACA’s requirements that health plans cover preexisting conditions; guarantee availability and renewability of coverage; cover adult children up to age 26; and cap out-of-pocket expenditures. Neither did it repeal the ACA’s prohibitions against health status underwriting, lifetime and annual limits; and discrimination on the basis of race, nationality, disability, age, or sex. It left perhaps 90 percent or more of the provisions of the original ACA in place.

The Original AHCA

What the original AHCA did do was eliminate, according to a Congressional Budget Office analysis of the bill, almost $900 billion in taxes imposed by the ACA on higher-income taxpayers and health care providers or insurers. It also cut Medicaid by an equivalent amount by phasing out enhanced funding for the Medicaid expansion and moving Medicaid to a block grant or per capita cap program.

As introduced in two separate parts into the House Energy and Commerce and Ways and Means Committees, the AHCA also made major changes in the ACA’s insurance reform provisions. It eliminated, for example, the cost-sharing reduction payments that reduce deductibles and other cost-sharing obligations for marketplace enrollees with household incomes below 250 percent of the federal poverty level. It repealed the penalties that enforced the ACA’s employer and individual responsibility requirements. It repealed the ACA’s requirement that health plans in the individual and small group market fit into metal tiers (bronze, silver, gold, and platinum) defined in terms of actuarial value. It replaced the ACA’s 3 to 1 maximum age rating differential with a 5 to 1 ratio, allowing insurers to charge older enrollees more and younger less. Finally, it amended the ACA’s means-tested premium tax credit provisions to eliminate caps on recapture of excess premium tax credits, allow tax credits to be used to purchase off-exchange plans, and increase tax credits for younger enrollees and ended them as of 2020.

The original AHCA also included new initiatives. One was a Patient and State Stability Fund, for which $15 billion was appropriated for 2018 and 2019 and $10 billion a year from 2020 to 2026 to help fund high-risk pools, reinsurance, and other state initiatives to stabilize insurance markets and assist individuals to afford coverage and care. States would have to apply for the money. They would also be required to match the federal contributions beginning in 2020. States that failed to apply for particular state programs would receive the funds for reinsurance.

The AHCA also included new age-based premium tax credits beginning in 2020. The tax credits would be refundable and advanceable and would only be available to individuals who were not eligible for employer coverage or government programs who enrolled in state-approved insurance plans. The annual tax credit amount was established at $2,000 for individuals under 30, $2,500 for those age 30 to 39, $3,000 for those age 40 to 49; $3,500 for those age 50 to 59, and $4,000 for those age 60 and over.

The amount of the premiums would not be adjusted based on income or geographic variations in premiums, but would phase out for taxpayers with incomes above $75,000 ($150,000 for joint filers). Current tax credits would continue until then but the formula for determining eligibility would be modified to increase assistance for younger enrollees and cut subsidies for older enrollees.

The original AHCA included a continuous requirement penalty—individuals who applied for insurance coverage who had a gap of 63 days or more in coverage during the preceding year would have to pay a 30 percent surcharge in premiums for approximately one year thereafter. The AHCA also rescinded remaining funds in the Prevention and Public Health Fund and barred funding for Planned Parenthood for one year. It would also have liberalized some Health Savings Account requirements.

The CBO Score For The Original AHCA

On March 13, 2017, the Congressional Budget Office released its analysis of the initial AHCA bill. Its analysis was not encouraging. It did project that the bill would save $337 billion over ten years, as $1.2 trillion in cost reductions (mainly from the Medicaid cuts and reduction in premium assistance to low-income Americans) was offset by an $883 billion reduction in revenues. The CBO projected, however, that the amendment would result in 14 million people dropping or losing coverage by 2018, rising to 24 million by 2026. The losses would come primarily from repeal of the individual mandate and Medicaid cuts.

The CBO concluded that the continuous enrollment penalty would not bring in healthy enrollees except during the first year. It might instead discourage them from enrolling. The AHCA would cause premiums in the individual market to increase 15 to 20 percent in the short run, but to decrease by 10 percent by 2026 as insurers offered skimpier plans.

The Manager’s Amendments

During the following week, the two parts of the AHCA were approved by the Energy and Commerce and Ways and Means Committee, combined into a single bill by the House Budget Committee, and sent on to the House Rules Committee. On March 20, 2017, however, the bill’s Republican sponsors modified the initial bill with a manager’s amendment. This amendment made several significant changes in the AHCA’s Medicaid provisions, including allowing states to opt for a block grant rather than per-capita cap. It also made changes in the AHCA’s tax repeals, moving the repeal dates on most up from 2018 to 2017.

The manager’s amendment made a number of changes in the new premium tax credits created by the AHCA, most of them fairly minor. For example, the AHCA was amended so that the new premium tax credits could not be used to pay for unsubsidized COBRA coverage but could be received by victims of domestic violence or spousal abandonment living separate from their spouses without the filing of a joint return for up to three years. Provisions in the AHCA that would have allowed individuals with premium tax credits that exceeded their premium obligations to pay the excess into an HSA were abandoned. Procedural requirements in the original AHCA for paying out premium tax credits were simplified. The manager’s amendment reduced the threshold for the medical expense tax deduction, but the Energy and Commerce Committee suggested that the $85 billion that this would cost could be redirected by the Senate to increase tax credits for older enrollees.

A further manager’s amendment offered on March 23 delayed the repeal of the ACA’s Medicare surcharge for a year and added $15 billion to the Patient Stability Fund for 2020 to cover maternity, mental health, and substance use disorder care. It also would have allowed states to define the essential health benefits to determine the coverage of benefits by premium tax credit. A CBO update also released on March 23 reported that the manager’s amendment would reduce the deficit reduction in the AHCA from $337 billion to $150 billion but still result in 24 million people losing coverage.

The AHCA as amended was approved by the House Rules Committee on March 24. It became clear, however, that there were not enough Republican votes to pass the AHCA as it stood at that point, and it was not brought to a floor vote.

The Invisible Risk-Sharing Amendment

On April 6, yet another amendment was offered in an attempt to move the bill forward. The amendment created an “invisible-risk sharing” program to supplement the AHCA’s Patient Stability Fund. Under the invisible risk sharing provision, health plans would identify enrollees with high-cost conditions at the time of enrollment. Insurers would cede 90 percent of the premiums collected from these enrollees to the federal risk pool, which would share in the costs of claims above a certain threshold incurred by these enrollees. The federal government would fund the program to the tune of $15 billion for nine years, a sum likely far too small to cover adequately the costs involved. The amendment passed the Rules Committee on a party-line vote, but was not brought to the House floor at that time.

The MacArthur Amendments

The AHCA blazed back to life on April 23, when amendments were introduced by Tom MacArthur (R-NJ) intended to pick up votes from the conservative House Freedom Caucus. Those amendments would allow states to apply for waivers from the ACA’s essential health benefit (EHB) and the AHCA’s 1 to 5 age rating requirements. Under the ACA, insurers are required to cover ten categories of EHB at levels equivalent to typical employer plans. Waivers would allow them to establish less generous minimum benefit requirements. The amendment also removed the earlier amendment allowing all states to establish EHB requirements for premium tax credit purposes.

The amendment also permitted a third kind of waiver, from the ACA’s community rating requirements, which would only be available for consumers who did not maintain continuous coverage. The ACA’s “community rating” rules prohibit insurers that offer non-grandfathered individual and small group coverage from basing premiums on health status. States granted a community rating waiver could allow insurers to health status underwrite for approximately one year for consumers who failed to maintain continuous coverage, but only if the states established a high-risk pool or reinsurance program or participated in the federal invisible risk sharing program. Insurers could not, under this amendment, consider gender in setting premiums and could not exclude consumers with preexisting conditions, although they could charge high-cost consumers risk-underwritten premiums that would effectively exclude them.

Although states would have to apply for a waiver, they would only have to attest that the waiver would reduce premiums or serve some other public policy and meet other requirements; in other words, the granting of waivers would be more or less automatic. Another amendment eliminated an embarrassing provision that would have exempted health insurance that covers members of Congress from waivers states may adopt.

The Upton Amendment

Finally, the Upton amendment offered by Congressman Fred Upton (R-MI) (summary) will create a fund of $8 billion for the years 2018 to 2023 to be granted to states that permit insurers to charge higher premiums to high-cost individuals who have had a gap in coverage based on health status to be used to provide “assistance to reduce premiums or other out-of-pocket costs of individuals who are subject to an increase in the monthly premium rate for health insurance coverage as a result of such waiver.”

The amendment has been described as funding state high-risk pools. A state could certainly use its share of the $8 billion (the funds will be apportioned to the states taking into account other stabilization fund grants) to fund risk pools as one approach to making coverage affordable to persons subject to high premiums because of their health status. But the money could also be used to directly subsidize the premiums or cost-sharing that high-cost consumers might have to pay for commercial insurance. Others have commented that $8 billion will fall well short of the amount needed to adequately ensure coverage to high-risk consumers and have also noted the problems that have plagued high-risk pools in the past. Of course, if few states opt for community rating waivers, the money could be adequate.

AHCA As Passed By The House

The final AHCA as passed combined the original bill with all the subsequent amendments. In sum it:

Eliminates the taxes and tax increases imposed by the ACA;

Phases out enhanced funding for the Medicaid expansions and imposes either a block grant or per capita caps on Medicaid;

Removes the individual and employer mandate penalties:

Increases age rating ratios from 1 to 3 to 1 to 5 in the individual and small group market and allows states to go higher by waiver;

Permits states to waive the ACA’s essential health benefit requirements;

Imposes a penalty on individuals who do not maintain continuous coverage.

Alternatively allows states to obtain a waiver to allow insurers to health status underwrite individuals who do not maintain continuous coverage.

Creates funds of $138 billion to assist states in dealing with high-cost consumers and for other purposes

Ends the ACA’s means tested subsidies as of 2020 and substitutes for them age-adjusted fixed-dollar tax credits.

What’s Next?

The bill now moves to the Senate where it faces a very uncertain future. The Republicans can afford to lose at most two votes in the Senate, and both conservative and moderate Republicans have concerns about the legislation. Moreover, to pass without Democratic support the legislation will have to meet strict budget reconciliation rules, and a number of the provisions do not obviously comply. Finally, the CBO has not yet scored the bill, and a score, which is likely to find dramatic increases in the uninsured, may raise further questions about the legislation.