The Better Care Reconciliation Act: It’s all up to the Senate

Yesterday, Senate Majority Leader Mitch McConnell released the details of the Senate’s healthcare discussion draft. Dubbed the “Better Care Reconciliation Act of 2017,” it largely mirrors the outline of the House-passed health bill, the American Health Care Act, but includes several structural and substantive policy differences. Many of the changes are a result of McConnell trying to bridge the divide between the wings of his conference and many are due to the strict budget rules in the Senate that dictate the reconciliation process.

As of this morning, several Republican Senators have expressed varying levels of concern and opposition to the discussion draft released yesterday. Republican leadership is emphasizing that they do not see the discussion draft as the final product, but more like an opening offer in negotiations with their conference. The conservative wing would like to see more provisions that actually change the foundation upon which the ACA was built, while moderate Senators would prefer an even softer transition in the Medicaid program.

Below is a summary of the discussion draft released yesterday by Leader McConnell.


The Senate bill ends the ACA Medicaid expansion and starts a three-year transition period for expansion states on January 1, 2020. Expansion states are limited to those that implemented the Medicaid expansion by March 1, 2017. The three-year transition period would see the enhanced federal match for those states reduced from 90 percent in 2020 to 85 percent in 2021 to 80 percent in 2022 to 75 percent in 2023 and then end entirely in 2024.

Eligibility redeterminations:  Like the House bill, the Senate bill requires states to redetermine Medicaid eligibility every six months (or sooner if the state chooses), starting on October 1, 2017. It also provides for a five percent enhanced federal match to help states implement this.

Optional work requirement:  The Senate bill allows states to include in their Medicaid program an optional work requirement for non-disabled, non-elderly, non-pregnant individuals beginning in FY2018. There is an increased matching available for implementation activities.

Medicaid and CHIP quality performance bonus payments:  The Senate bill provides for $8 billion in performance-based payments for states that report on and meet quality indicators and whose spending is below benchmarks.

Per capita caps

The Senate bill starts the transition from the current Medicaid program to per capita caps (PCCs) in FY 2020.

Baseline:  Instead of using FY 2016 as the base year (as in the House bill), the Senate version allows the states to choose any eight consecutive fiscal quarters within the period of 2014 through 2017 to calculate an average base year. HHS may adjust the base year if it determines the state has taken actions (e.g., through supplemental payment data retroactive adjustments) to “diminish the quality of the data” used in calculating the PCCs. There are certain exclusions from the baseline period, such as disproportionate share hospital (DSH) payment adjustments, Medicare cost-sharing and non-expansion state provider payment adjustments.

Growth rate:  From 2020 to 2024, the Senate bases their growth rate on the medical component of the consumer price index (CPI). Starting in 2025, the Senate bill uses the CPI for all urban consumers (CPI-U).

PCC target adjustments:  States whose expenditure targets exceed the mean by at least 25 percent will be reduced by an HHS-determined amount of 0.5 percent to 2.0 percent. If less than the mean per-capita expenditure for all states (but not by less than 25 percent), states will receive a corresponding HHS-determined increase. Federal payments must be budget neutral. The provision does not apply to “low population density” states.

Excluded populations:  The Senate bill lists the following excluded populations from PCCs: CHIP beneficiaries, Indian Health Service, breast and cervical cancer services-eligible enrollees, specified partial-benefit enrollees, and medically complex children.

Essential health benefits (EHBs):  Like the House-passed bill, the Senate bill sunsets Medicaid EHBs after Dec. 31, 2019.

Block grant option

Medicaid Flexibility Program:  The Senate bill, like theHouse bill, provides states the option to choose the “Medicaid Flexibility Program” instead of PCCs beginning in FY 2020. The Senate bill includes requirements on the state with respect to the application process, including publishing the application in the state along with at least a 30-day state notice and comment period. The Senate bill also includes required benefits and services, applies mental health and substance abuse parity, and applies Medicaid rebates if outpatient drugs are covered. Premiums, deductibles and cost-sharing are permitted as long as they do not exceed 5 percent of family income.

Provisions for non-expansion states

Removes DSH cuts for non-expansion states:  The bill would remove ACA-implemented DSH allotment cuts for all non-expansion states. In addition, non-expansion states whose DSH allotments were below the national average in FY 2016 would receive an increase in their FY 2020 DSH allotment by the amount it would take to meet the FY 2016 national average. This one-time increase would not impact future calculations. The removal of DSH cuts would not apply to expansion states, whose ACA DSH cuts would stay in place.

Additional safety net funding for non-expansion states:  The Senate bill allows non-expansion states to provide additional “safety net” provider payments “so long as the payment adjustment to such an eligible provider does not exceed the provider’s costs in furnishing health care services” as well as providing an increase in FMAP for such adjustments. 100 percent in FY 2018 through 2021 and 95 percent in FY 2022.

Other Medicaid-related provisions

Support for state opioid crisis response:  The bill would appropriate to HHS $2 billion for FY 2018 “to provide grants to States to support substance use disorder treatment and recovery support services for individuals with mental or substance use disorders.”

Medicaid provider taxes:  Starting in FY 2021 continuing over the next five years, the bill gradually reduces the threshold allowed for provider taxes from 6 percent in current law down to 5 percent by 2025.

Planned Parenthood:  The Senate bill includes the House-passed policy defunding Planned Parenthood for one year in the Medicaid program. Also, like the House-passed health bill, the Senate bill provides an additional $422 million for community health centers for one year.

Changes to the Affordable Care Act

Repeals the individual and employer mandates:  Like the House-passed health bill, the Senate bill also retroactively repeals both the individual and employer mandates, effective back to 2016.

Subsidies/tax credits

ACA subsidies:  The Senate bill continues ACA subsidies as currently structured through 2019. Beyond 2019, the Senate bill modifies the eligibility of subsidies down from 400 percent FPL to 350 percent FPL and extends them down to 0 percent FPL from 100 percent FPL in the ACA. Also, the amount of the subsidy is based on income, age and geography, and is tied to a maximum percentage of income an individual can spend on the cost of his or her premium.

Definition of “lawful presence”:  The Senate bill makes modifications to the definition of lawful presence, such as replacing it with “qualified alien.”

Benchmark plan:  Instead of using the ACA’s second-lowest-cost silver plan as the benchmark for premium subsidies, the Senate bill defines the benchmark plan as median premium that has 58 percent actuarial value.

Small Business Tax Credit:  The Senate bill ends the small business tax credit starting in 2020; for plans with abortion coverage, the credit ends starting in 2018.

Cost-Sharing Reduction (CSRs) Subsidies:  The bill appropriates cost-sharing reduction subsidy payments for two years through plan year 2019, and then repeals the cost-sharing subsidy program after Dec. 31, 2019.

Insurance market changes

Age rating:  Like the House bill, the Senate legislation changes age rating bands to 5:1 and would take effect for plan years beginning on or after Jan. 1, 2019. States are given the flexibility to set their own age rating bands.

MLRs:  The Senate bill sunsets the ACA’s medical loss ratio for plan years beginning on or after Jan. 1, 2019, allowing states to set their MLR thereafter.

QHP definition:  The Senate bill specifically excludes from the definition of a qualified health plan (QHP) any plans that cover abortion (except abortions “necessary to save the life of the mother or any abortion with respect to a pregnancy that is the result of an act of rape or incest”) as of Dec. 31, 2017.

1332 waivers:  The Senate makes changes to the ACA’s 1332 waiver process by allowing states to waive a variety of ACA requirements, including essential health benefits and regulations prohibiting subsidies off-Exchange. The Senate bill also removes the requirement that 1332 waivers must be budget neutral or achieve the same coverage rates as would otherwise be attained under federal law and instead requires that the waiver must not add to the federal deficit. HHS may also establish an expedited waiver approval process, if the waiver responds to “an emergency situation with respect to health insurance coverage” in the state. The Senate bill encourages states to apply by making available $2 billion in grant funding through 2019 for the application process.

Small business health plans:  The Senate bill adds a section to include group health plans sponsored by trade associations within the definition of “small business health plan.” It establishes requirements for plan certification, sponsors, board governance and plan oversight, and includes a provision that preempts states laws that preclude issuers from offering trade association-sponsored plans.

ACA Taxes

Cadillac tax:  Like the House bill, the Senate bill delays the Cadillac tax until 2025.

Medical device tax: Like the House-passed bill, the Senate bill repeals the 2.3 percent excise tax on medical devices, but does so beginning in 2018, one year later than the House version.

Health insurance tax:  The Senate bill repeals the health insurance tax beginning in CY 2017.

Medicare tax:  The Senate bill, like the House passed health bill, repeals the ACA’s Medicare tax on high earners, which is an additional 0.9 percent tax, effective January 1, 2023.

Net investment tax:  The Senate bill, like the House passed health bill, repeals the net investment tax; retroactively effective January 1, 2017.

Tax on OTC medications:  The Senate bill, like the House-passed health bill, repeals the prohibition of paying for over-the-counter medicines with health savings accounts; retroactively effective January 1, 2017.

Tax on prescription medications:  The Senate bill repeals this tax effective in 2018, one year later than the effective date in the House-passed health bill.

Medicare Part D deduction:  The Senate bill repeals the ACA’s elimination of employers’ deduction for retiree drug costs; retroactively effective January 1, 2017.

Medical deduction tax:  Also known as the “chronic care tax,” it is repealed in the Senate bill retroactively effective January 1, 2017, and the medical deduction threshold is restored to its pre-ACA level of 7.5 percent.

Tanning tax:  The Senate bill repeals the ACA tanning tax effective Sept. 30, 2017.

Health savings accounts (HSAs):  The Senate bill lowers the additional tax on distributions not used for qualified medical expenses from HSAs from 20 percent increase in the ACA to a 10 percent increase, and for Archer medical savings accounts from 20 percent down to 15 percent; allows spouses each enrolled in a high-deductible health plan to make catch-up contributions to the same HAS; and increases maximum contributions to HSAs to the amount of the deductible and out-of-pocket limitation.

Stabilization Fund

Short-term stability:  The bill would appropriate $15 billion for CY 2018 and 2019; and $10 billion for years 2020 and 2021 for CMS to fund arrangements with “health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Funds remain available until spent.

Long-Term stability and innovation program:  The bill appropriates a total of $62 billion from CY 2019 to 2026, including $8 billion for CY 2019, $14 billion for CYs 2020 and 2021, $6 billion for CYs 2022 and 2023, $5 billion for CYs 2024 and 2025 and $4 billion for 2026. For CYs 2019-2021, HHS must ensure that states spend at least $5 billion each year on premium stabilization (e.g., reinsurance or high-risk pools). The Senate bill identifies a formula for redistributing unspent money among other states.

States can apply for funding for one of four purposes: (i) to establish a program or mechanism to fund high-risk individuals who don’t have coverage(ii) to enter into arrangements with health insurance issuers to help stabilize premiums and promote state health insurance market participation; (iii) to provide payments for health care providers;  and (iv) to provide assistance to reduce out-of-pocket costs, such as copayments, coinsurance and deductibles, of individuals enrolled in plans offered in the individual market. Starting in CY 2022, states will have to pay a specific match rate to receive 100 percent of the federal amount as follows: 7 percent for CY 2022, 14 percent for CY 2023, 21 percent for CY 2024, 28 percent for CY 2025, and 35 percent for CY 2026.

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Jenifer Healy

About Jenifer Healy

John R. Russell, IV

About John R. Russell, IV

John Russell is a member of Dentons' Public Policy practice. Focusing on federal advocacy and strategic communications, John worked for nearly a decade on Capitol Hill, serving on the leadership staffs of a speaker, a House majority whip and the chairman of the House Campaign Committee. In his career, John has worked both extensively and effectively in the legislative, communications and campaign arenas.

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