After a month of closed-door meetings, Senate Republicans emerged last week with a bill to repeal and replace the Affordable Care Act.
The legislation, introduced as The Better Care Reconciliation Act of 2017 (BCRA), is the Senate’s answer to the American Health Care Act (H.R. 1628), which the House of Representatives passed on May 4.
The Senate bill preserves much of the House’s work while making some key changes that could influence the federal budget and the legislation’s overall chances of passage.
For small businesses, the national discussion on health care policy has brought much uncertainty. Any changes will have a big impact on the realm of employee benefits.
In this post, we’ll cover the BCRA’s major provisions, its differences from the AHCA, what must happen to make it law, and how its passage would affect small businesses.
History of the BCRA
Since the House passed the AHCA in May, the Senate has taken up the torch of health care reform.
After individual senators expressed dismay with certain tenets of the House’s legislation, Senate leadership met privately to draft a new bill. On June 22, the BCRA was released.
Like the AHCA, the BCRA is a budget reconciliation bill. Under this process, legislation can be passed with a simple majority vote in the Senate.
This is key for health care reform. Republicans don’t have the majority necessary to pass a full repeal and replacement of the Affordable Care Act, which would require 60 votes in the Senate to overcome potential filibusters.
Under budget reconciliation, the BCRA must match or exceed the budget savings created in the AHCA. Its provisions must also focus exclusively on matters affecting the federal budget. Any provisions determined to be “extraneous” could compromise the bill’s status as budget reconciliation and subject it to a filibuster by Democrats.
The Senate parliamentarian, who is the body’s official advisor on the Standing Rules of the United States Senate and parliamentary procedure, makes these determinations.
What’s in the BCRA?
Much of the BCRA resembles the AHCA, though some provisions revise and restructure the House’s efforts.
Key provisions of the BCRA include:
- Removing the employer and individual mandates
- Scaling back eligibility for health insurance subsidies
- Eliminating the ACA’s small business tax credit
- Implementing state waivers from certain ACA requirements
- Providing funding for high-risk pools
- Enhancing health savings accounts (HSAs)
- Rolling back and delaying several ACA taxes
- Defunding Medicaid expansion and altering the program
- Altering premium tax credits for the QSEHRA
We’ll go over each BCRA provision and, when applicable, how it compares with what’s in the AHCA.
Removing the employer and individual mandates
Like the AHCA, the BCRA eliminates the employer and individual mandates by reducing the penalties imposed under these provisions to zero. This would be effective for both mandates beginning retroactively in 2016.
The BCRA does not, however, include the 1-year, 30 percent late-enrollment fee present in the AHCA. This fee would have allowed insurers to add a 30 percent fee to the premium of any applicant with a coverage lapse of more than 63 days during the past 12 months.
Scaling back eligibility for health insurance subsidies
The BCRA maintains the premium tax credits created under the Affordable Care Act, but limits eligibility and credit size.
Under the ACA, anyone earning up to 400 percent of the poverty level is eligible for a credit. The caps don’t vary by age, and the benchmark plan is a Silver plan with an actuarial value of 70 percent. Enrollees pay an average of 30 percent of their health expenses through cost sharing.
The BCRA lowers that cap to 350 percent. Additionally, the BCRA’s premium caps vary by age and range from 2 percent of income for those under 29 earning 100 percent of the federal poverty level, to 16.2 percent of income for 60–64 year olds earning 350 percent of the poverty level. Under the BCRA, the benchmark plan has an actuarial value of 58 percent. Enrollees pay an average of 42 percent of their health expenses through cost sharing.
The AHCA, meanwhile, ties subsidy levels to age and family status only, beginning in 2020. The value of the credits would begin to phase out at $75,000 for individuals and $150,000 for families.
For a more detailed comparison of tax credit provisions in the ACA, the AHCA, and the BCRA by region, check out the Kaiser Family Foundation’s interactive map.
Removing the ACA’s small business tax credit
Like the AHCA, the BCRA would repeal the ACA’s small business tax credit beginning in 2020. Additionally, small businesses that purchase a health policy covering elective abortion would not be eligible for the credit in 2018 or 2019.
Implementing state waivers from certain ACA requirements
The AHCA allows states to apply for waivers exempting them from some of the ACA’s requirements, including essential health benefits and community rating.
Under the AHCA, states could apply for waivers to:
- Set their own essential health benefits.
- Allow insurers to charge more based on age.
- Allow insurers to charge more based on health status in some cases.
The BCRA also allows states to request waivers, though not from community rating. Instead, the Senate bill allows waivers for the following regulations:
- Essential health benefits. Under the BCRA, states could set their own essential health benefits, which may or may not include the 10 main services defined under the ACA.
- The medical loss ratio. The ACA requires insurers to spend at least 80 percent of premiums on patient care. The BCRA allows states to adjust this figure.
- Actuarial value. Currently, insurers must cover—at a minimum—an average of 60 percent of policyholder’s medical expenses. The BCRA allows states to adjust this figure.
- Age rating ratio. Under the ACA, insurers may charge older enrollees up to three times as much as younger enrollees. The BCRA allows states to adjust this figure.
In their applications for these waivers, states need to include a “description of alternative means” for “increasing access to comprehensive coverage, reducing average premiums, and increasing enrollment.” However, the only standard for waiver approval is that the waiver must not increase the federal deficit.
If this is found to be the case, the BCRA states that the U.S. Health and Human Services Secretary “shall” approve the waiver.
Providing funding for high-risk pools
The BCRA largely replicates the AHCA’s establishment of the Patient and State Stability Fund, a federal high-risk pool that would be in effect from 2018 to 2023. The funds would be given to states in an effort to reduce premium and out-of-pocket costs for people facing a premium hike because of the effects of the waivers.
The funds would also be available to insurers who face large losses operating on the individual market.
However, the Senate bill grants less funding for the Patient and State Stability Fund than does the House bill. Under the AHCA, states would receive $130 billion over 10 years. Under the BCRA, states would receive just $112 billion over that time.
The BCRA also includes an additional $2 billion for fighting the opioid epidemic.
Enhancing health savings accounts
The BCRA keeps all the provisions from the AHCA relating to health savings accounts. These include:
- Increasing the 2017 maximum HSA contribution limits to $3,400 for self-only coverage and $6,750 for family coverage. Going forward, limits will be at least $6,550 for self-only coverage and $13,100 for family coverage.
- Allowing both spouses to make catch-up contributions to the same HSA account, beginning in 2018.
- Allowing HSA funds to cover expenses incurred before the account owner’s high-deductible health plan (HDHP) went into effect, as long as the account is established within 60 days.
- Allowing HSA funds to pay for over-the-counter-medications.
- Lowering the tax penalty if an account owner uses HSA funds to pay for unqualified medical expenses to 10 percent.
Rolling back and delaying several ACA taxes
The BCRA replicates the AHCA’s rollback of several ACA taxes. These rollbacks affect:
- The Cadillac tax. The BCRA would delay the 40 percent excise tax on high-cost group coverage to 2026.
- Investment income tax. The repeals the ACA’s 3.8 percent excise tax on investment income.
- FSA contribution limits. The $2,500 contribution limit under the ACA would be repealed.
- Medicare tax. The additional 0.9 percent tax paid by high-income individuals would be repealed in 2023.
- Medicare Part D subsidy. The BCRA restores businesses’ ability to take a tax deduction for the Medicare Part D subsidy without reducing it by the amount of any federal subsidy, effective 2017.
- Medical devices excise tax. The 2.3 percent medical devices excise tax, as well as the health insurance providers fee and the fee on select brand pharmaceutical manufacturers, would be repealed.
- Indoor tanning tax. The BCRA repeals the 10 percent sales tax on indoor tanning services effective June 30, 2017.
- Medical expense deduction income. The BCRA would reduce the medical expense deduction income threshold to 5.8 percent beginning in 2017.
Defunding Medicaid expansion and altering the program
Both the AHCA and the BCRA ends the Medicaid expansion enacted under the ACA, which extended the program from those making 100 percent to those making 138 percent of the federal poverty limit. While the AHCA would begin ending funding immediately, the BCRA phases out the expansion more slowly.
Under the BCRA, federal funding for Medicaid would be phased out between 2021 and 2023. Additionally, eight states would have a trigger clause, meaning that if the federal matching rate declines below the ACA-promised rates, the expansion would go away immediately.
Additionally, the AHCA and the BCRA would alter how the federal government dispenses Medicaid funds. Instead of continuing as an open-ended entitlement, states would receive a per-capita allotment of money. States would also have the option of receiving a lump sum toward Medicaid each year as a block grant, in return for more flexibility on how to administer the program.
The BCRA would also cap overall federal spending on Medicaid, with the cap adjusting annually to reflect inflation. Through 2025, the bills would adjust the cap based on the consumer price index for medical expenses (CPI-M)—a measure of how rapidly medical costs are expanding.
Beginning in 2025, however, the BCRA would change the formula to fund Medicaid based on the consumer price index for urban consumers (CPI-U), a measure of how rapidly all costs are rising. This is a traditionally much lower level of growth and would mean more restrictive growth for Medicaid funding.
Finally, like the AHCA, the BCRA suspends Medicaid reimbursement to Planned Parenthood for one year.
Altering premium tax credits for the QSEHRA
Like the AHCA, the BCRA simplifies the process for determining premium tax credit eligibility for individuals with a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), sometimes called a Small Business HRA.
Under current law, participants in a QSEHRA must first determine whether the HRA’s monthly allowance would mean the participant’s individual insurance policy qualifies as affordable coverage. If so, the participant doesn’t qualify for a premium tax credit. If the allowance doesn’t make the policy affordable, however, the participant can receive a premium tax credit. The premium tax credit is then reduced by the sum of the monthly HRA allowance.
Under the AHCA and the BCRA, participants would no longer need to determine whether their HRA allowance makes their policies affordable. Instead, they would only need to ensure their tax credit is reduced by the amount of their HRA allowance.
Additionally, the BCRA expands the list of items reimbursable through QSEHRA funds to include over-the-counter drugs obtained without a doctor’s prescription.
Next steps for health care reform
The BCRA must pass through several political and regulatory hurdles to become law.
First, the budget reconciliation process requires that the Senate bill save the federal government as much as or more than the House bill.
According to the Congressional Budget Office (CBO)’s score of the AHCA, the House bill would reduce the deficit by $119 billion over 10 years. While the BCRA preserves many of the AHCA’s provisions, certain tenets of the law could lead to lower total savings, complicating the reconciliation process.
Additionally, provisions like the defunding of Planned Parenthood could be classified as extraneous by the Senate parliamentarian.
What’s more, at least four conservative Republicans have come out against the BCRA and the House Freedom Caucus has raised concerns that the Senate bill does not preserve the AHCA’s more strident state waivers.
More moderate legislators are also concerned over both bills’ cuts to Medicaid.
It’s too early to give a prognosis on the BCRA, perhaps, but it does seem to face an uphill battle to passage.
What health care reform means for small businesses
The BCRA and the AHCA contain several items that could affect small businesses.
Both bills eliminate the employer mandate, which would put small and large businesses on an equal playing field. Neither category would be required to offer employees health insurance, and more businesses would be likely to send employees to the individual exchanges.
Both bills also eliminate the small business tax credit. Some aid is given to small business employee benefits, however, by enhancing the value of HSAs and simplifying the process by which premium tax credits are coordinated with QSEHRAs.
While it’s an open question whether Republican health care reform would benefit small businesses, it’s certain that any bill would alter the benefits landscape. Small businesses would do well to pay attention to policy changes like these as they develop over the coming weeks.