Senate Health Care Q&A

By now you have seen the headlines, but to understand the full impact of the Senate Health Care bill (Better Care Reconciliation Act),  here is a Q&A that dives into some of the numbers of the current version of the plan. What is Medicaid? Medicaid is the country’s largest government health care program, covering about 20 percent (74 million) of all Americans, including:

•      Low-income families
•      Pregnant women
•      People of all ages with disabilities
•      People who need long-term care (2/3 of all people in nursing homes)

Medicaid was created early 51 years ago (July 30, 1965, to be exact), when President Lyndon B. Johnson signed into law the U.S. government’s sprawling health care initiative that led to both Medicaid and Medicare. (Medicare is for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.)

How is Medicaid funded? Currently, the program is a partnership between the federal government and the states, where each pays a portion of a patient’s bills, with no limit.

How did Medicaid change under ACA? Obamacare provided states with money to enroll those residents whose household income was 133 percent below the poverty level. (Because of the way this is calculated, it turns out to be 138 percent of the federal poverty level, though a few states use a different income limit.)

In 2017, the poverty level for a family of four is $24,600, so households earning less than about $34,000 are eligible for coverage under ACA. About 14 million new Medicaid enrollees from 31 states and Washington DC have been added to the Medicaid program since the ACA launched.

What would happen to the Medicaid expansion under the Senate plan? Starting in 2021 (conveniently after the next Presidential election), federal funding to states would begin a three-year roll back. While states could keep the newer enrollees in the plan, as of 2024, they would do so on their own, without federal funding, which would likely mean that most states would end the expansion, due to the high costs.

How would Medicaid funding work under the Senate plan? Beyond the expansion, Medicaid itself would be restructured in a BIG way. Instead of a largely open-ended program, the Senate plan would cap the amount of money that the government would provide to the plan. States could choose either a lump sum (block grants) or a per-beneficiary payment.

How does the Senate plan account for health care inflation? This is a little wonky, but stay with me! The government uses different measures inflation for various purposes. When you see the Consumer Price Index reported, it reflects inflation at the retail level, and measures the average price change over time for a constant quality, constant quantity market basket of goods and services. There is a SEPARATE CPI (CPI-M) that takes into account the price of medical care commodities and services, which the House health care plan used to factor in the quicker pace of medical inflation into the future government funding of Medicaid.

The Senate plan would continue to use CPI-M, but only until 2025. After that, the plan would rely on the general Consumer Price Index for all urban consumers (CPI-U). The effect of the change would be that the government would lower the rate of Medicaid spending, at a time when costs could be rising substantially.

How does the Senate plan impact capital gains and payroll taxes? The plan would repeal the taxes that were created to pay for Obamacare. The most notable is a 3.8 percent tax on Net Investment Income (capital gains and dividends), which only applies to individuals with incomes exceeding $200,000 and married couples making more than $250,000, as well as some trusts and estates. Repeal of the tax would be retroactive as of Jan 1, 2017. The Tax Policy Center has found that repealing the 3.8 percent tax would not help most families in the bottom 90 percent of the income distribution (those making $208,500 or below), but the effects would flow disproportionately to the top one percent.

The separate 0.9 percent ACA payroll tax tacked on to income earned above 200,000 dollars for individuals and $250,000 for couples, would remain in place until 2023. After that, it would be repealed.

What about other taxes? The Senate plan would repeal a tax on indoor tanning, limits on contributions to flexible-spending accounts, higher limits on deductible medical expenses, taxes on pharmaceutical companies and health insurance premiums and an excise tax on medical devices. The plan would also repeal a rule that prevents health-insurance companies from deducting more than $500,000 for the compensation of their top executives and would delay on high cost plans (Cadillac tax) until 2026, six years later than the current tax is set to go into effect.

How much revenue would the government lose by cutting these taxes? About $600 billion over the next 10 years, according to the Center for a Responsible Federal Budget.

Will the Senate plan provide tax credits? Yes, though less than those offered under ACA. The Senate plan would lower than annual limit to qualify for subsidies from 400 percent above the poverty level ($47,550 for an individual or $97,200 for a family of four), to 350 percent ($41,580 for individuals and $85,050 for a family of four).

What happens to the ACA Individual Mandate? It’s gone. Under ACA, the individual mandate required that nearly all Americans (with a few exceptions) carry health insurance coverage, or pay a fine. The theory was to make sure that enough young, healthy people enroll, in order to help keep premiums lower. For 2017, the annual fee for not having insurance was set $695 per adult. Without the mandate, the fear is that only those who know they need health care (i.e. sick people) will buy insurance. 

On Monday, Senate leaders added a provision that would penalize those who let their insurance lapse. Individuals who had a break in continuous coverage for 63 days or more in a prior year would have to wait six months before coverage begins, though they would not have to pay premiums during that time, so critics are not sure whether the stick is enough to keep people on the insurance rolls. The measure is intended to prompt even healthy people to keep their health insurance, which is seen as a necessary component to any health care plan.

What is the net effect of the Senate plan? According to the Congressional Budget Office, the plan would mean that over the next ten years, 22 million people would become uninsured and there would be a $772 billion dollar reduction in Medicaid spending, which along with other cuts, would amount to a just over $1 trillion drop in direct government spending. However, tax cuts for the wealthy and other changes to the ACA, would cost the government $701 billion dollars, thereby reducing the deficit by $321 billion dollars over the period.

On June 29, CBO released a follow up analysis, which projected that Medicaid spending under the Senate plan would be 35 percent lower after two decades.

Who are the winners of the Senate plan? Younger, healthier Americans could pay less for less comprehensive coverage; the wealthy would see a tax cut; medical device makers, pharmaceutical companies and tanning salons.

 Who are the losers of the Senate plan? Current ACA enrollees will pay more for less coverage; Medicaid recipients could see coverage gutted over the next eight years; Older Americans will pay higher premiums for skimpier care; middle class Americans, some of whom will no longer qualify for subsidies or receive smaller amounts; those with pre-existing conditions or opioid addictions could be forced to pay more to get less (or no) coverage.