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    May 01, 2017

    House Votes to Repeal and Replace Obamacare When It Really Matters

    Robert James Cimasi, Todd A. Zigrang, and Jessica L. Bailey-Wheaton, Health Capital Consultants, St. Louis, MO

    On May 4, 2017, the U.S. House of Representatives voted 217 to 213 (largely along party lines) to pass a bill entitled the American Health Care Act (AHCA) to repeal and replace the Patient Protection and Affordable Care Act (PPACA), a/k/a Obamacare.1 In weighing the significance of this recent House vote, it is important to consider how the AHCA failed previously. 

    Upon AHCA’s original introduction in the House in March 2017, both conservative and moderate Republicans were hostile to the bill, albeit for different reasons.2 Conservatives (including, notably, the House Freedom Caucus)3 disliked many of AHCA’s provisions, holding sentiments similar to those of Senator Rand Paul (R-KY), who called the proposed legislation “Obamacare Lite.”4 To win over House conservatives, Republican leaders made changes to the bill, including the elimination of essential health benefits5 as mandated by PPACA.6 On March 13th, the nonpartisan Congressional Budget Office (CBO) released its scoring of the AHCA, which estimated that 24 million people would lose health insurance coverage if the bill were enacted into law.7

    The CBO report contributed to widespread public outcry against the bill.8 The fallout from AHCA’s CBO scoring, along with approximately $880 million in cuts to the Medicaid program (see below for further discussion), resulted in many moderate Republicans refusing to support the bill.9 Ultimately, Republican leadership in the House could not garner the requisite number of votes to pass the AHCA, and chose to withdraw the bill on March 24th, shortly before the scheduled vote.10 Rep. Jim McGovern (D-MA) summarized the Republicans’ quandary for future healthcare reform succinctly: “The bill went down because it was too bad for Republican moderates and not bad enough for the conservatives. I don’t know how they reconcile the divides within their own conference, never mind find any Democratic votes.”11

    Revisions Enable Bill to Obtain Needed Votes

    After what some viewed as an embarrassing turn of events, House Republicans regrouped and revised their bill. This time around, the AHCA was amended to (1) allow states to apply for waivers to: (a) allow them to charge older individuals more than younger individuals and (b) determine which health benefits must be included in an insurance plan; and, (2) add $8 billion in funding for state high risk pools to cover individuals with pre-existing medical conditions.12 These changes to the AHCA resulted in the revised bill receiving the backing of the House Freedom Caucus, and a sufficient number of moderate Republicans, to pass the revised bill. Although, as of this publication, the CBO has not separately scored this second version of the AHCA, it has stated that the revised bill would leave the same number of individuals without insurance as the original bill – approximately 24 million.13

    Some notable provisions of the latest version of the AHCA include the following:

    • PPACA’s penalties under the Individual Mandate14 and Employer Mandate15 would be eliminated immediately, and individuals who are without insurance for 63 days must pay a 30 percent one-time “late-enrollment surcharge” of the monthly premium rate, in addition to the base premium;16
    • PPACA’s Medicaid coverage expansion would be eliminated in 2020, and Medicaid would be converted to a block grant program.17 While the CBO has yet to release its analysis of the revised AHCA (as noted above), the office’s analysis of earlier versions of the bill noted that federal spending on Medicaid would be reduced by $880 billion;18
    • Although individuals would have an opportunity to maintain guaranteed issue coverage, states could seek waivers opting out of certain of PPACA’s health insurance mandates, allowing health insurers to (1) offer coverage that does not meet the essential health benefits requirements; and, (2) discriminate (with respect to pricing and coverage decisions and denials) against individuals with pre-existing medical conditions;19
    • The additional $8 billion (over a five-year period) added by an amendment to the AHCA offered by Rep. Fred Upton (R-MI) would supplement more substantial funding for high-risk pools in states which have opted out of PPACA’s protections for individuals with pre-existing conditions (i.e., a total of $138 billion is available over 10 years that could be used by states for several purposes, including subsidizing insurance premiums and high-risk pools, among others);20
    • The variance in premiums that insurers are permitted to charge for individuals based on their age would increase from a ratio of 3:1, as mandated by PPACA,21 to 5:1 (likely increasing the cost of coverage for older, non-Medicare adults);22
    • Tax subsidies to individuals to help pay insurance premiums would be replaced with refundable tax credits which vary with age, along with income23 (likely benefitting younger adults and disadvantaging some low and moderate income families);24 and,
    • Many of PPACA’s taxes – e.g., payroll taxes, medical device taxes, and excise taxes on high-cost employer health insurance – would be eliminated.25

    Bill is not Universally Embraced

    The AHCA is either opposed or criticized by numerous provider constituencies such as the American Medical Association (AMA),26 the American Hospital Association, and America's Essential Hospitals;27 by America’s Health Insurance Plans (AHIP) and certain private insurers such as Blue Shield of California;28 as well as by more consumer-oriented advocacy organizations such as the American Association of Retired Persons (AARP)29 and the American Heart Association.30

    What Happens Next?

    The House version of the AHCA, with the provisions noted above (which was opposed by 20 Republicans and every Democrat) still must receive Senate approval. Many senators have indicated that they will develop an entirely new bill (on which language the House would then have to approve),31 while other senators predict that the AHCA will not have the requisite number of votes in the Senate to pass.32 While the exact timeline of a vote in the Senate is currently unknown, it is likely that a vote will occur prior to the end of the 2017 fiscal year, i.e., by September 30, 2017.33

    Despite the mix of reactions from fellow lawmakers, healthcare organizations, and the general public,34 to the passage of the AHCA in the House, and its uncertain future in the Senate, President Trump has expressed his confidence that the Senate bill will have “some really, really great additions and changes” and that it will advance to his desk for signing into law.35

    1. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, March 20, 2017.
    2. “Under GOP draft of Obamacare repeal plan, a lot of people could lose coverage” By Tami Luhby, CNN, February 25, 2017, http://money.cnn.com/2017/02/25/news/economy/obamacare-repeal-gop/ (Accessed 5/12/2017).
    3. The House Freedom Caucus, established in 2015, is a group comprised of approximately 30 of the most conservative Republican representatives. Membership in the Caucus is secret and “invitation-only,” so the exact number and identity of those representatives is unknown. “Freedom Caucus: Do these 29 white men run America?” By Katie Shepherd, BBC News, March 28, 2017, http://www.bbc.com/news/world-us-canada-39410555 (Accessed 5/12/17).
    4. “3 reasons Rand Paul calls GOP repeal plan ‘Obamacare Lite’” By Tami Luhby, CNN, (March 4, 2017), http://www.cnn.com/2017/03/04/politics/obamacare-lite-rand-paul/ (Accessed 5/12/2017).
    5. Essential Health Benefits are 10 healthcare items required by all insurance coverages under PPACA, i.e., (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care. “Information on Essential Health Benefits (EHB) Benchmark Plans,” The Center for Consumer Information & Insurance Oversight, Centers for Medicare & Medicaid Services, https://www.cms.gov/cciio/resources/data-resources/ehb.html (Accessed 5/12/2017).
    6. “White House moves to tweak health care bill to win over conservatives” By Josh Dawsey and Jennifer Haberkorn, Politico, March 22, 2017, http://www.politico.com/story/2017/03/white-house-health-care-bill-tweaks-236385?lo=ap_a1 (Accessed 5/12/2017). 
    7. “American Health Care Act: Budget Reconciliation Recommendations of the House Committees on Ways and Means and Energy and Commerce, March 9, 2017” Congressional Budget Office, Cost Estimate, March 13, 2017, https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/americanhealthcareact.pdf (Accessed 5/12/2017); “Fewer Americans Would Be Insured With G.O.P Plan Than With Simple Repeal” By Margot Sanger-Katz, The New York Times, March 21, 2017, https://www.nytimes.com/2017/03/21/upshot/fewer-americans-would-be-insured-with-gop-plan-than-with-simple-repeal.html (Accessed 5/12/2017).
    8. “Fewer Americans Would Be Insured With G.O.P Plan Than With Simple Repeal” By Margot Sanger-Katz, The New York Times, March 21, 2017, https://www.nytimes.com/2017/03/21/upshot/fewer-americans-would-be-insured-with-gop-plan-than-with-simple-repeal.html (Accessed 5/12/2017).
    9. “In Major Defeat for Trump, Push to Repeal Health Law Fails” By Robert Pear, et al., The New York Times, March 24, 2017, https://www.nytimes.com/2017/03/24/us/politics/health-care-affordable-care-act.html?rref=collection%2Fsectioncollection%2Fhealth&action=click&contentCollection=health&region=stream&module=stream_unit&version=latest&contentPlacement=16&pgtype=sectionfront (Accessed 5/12/17).
    10. “How the Health Care Vote Fell Apart, Step by Step” By Katie Rogers, The New York Times, (March 24, 2017), https://www.nytimes.com/2017/03/24/us/politics/guide-to-how-the-health-care-vote-fell-apart.html?action=click&contentCollection=Politics&module=RelatedCoverage&region=EndOfArticle&pgtype=article (Accessed 5/12/2017).
    11. “Repeal of Affordable Care Act Is Back on Agenda, Republicans Say” By Robert Pear and Jeremy W. Peters, The New York Times, (March 28, 2017), https://nyti.ms/2nICECG (Accessed 5/12/2017).
    12. Report, Committee on Rules, U.S. House of Representatives, 115th Congress, May 3, 2017 (altering “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session [March 20, 2017]).
    13. “American Health Care Act: Budget Reconciliation Recommendations of the House Committees on Ways and Means and Energy and Commerce, March 9, 2017” Congressional Budget Office Cost Estimate, March 13, 2017, https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/americanhealthcareact.pdf (Accessed 5/12/17), p. 2.
    14. The Individual Mandate represents a PPACA provision that required individuals, with certain exceptions, to maintain a baseline level of health insurance coverage, or face a financial penalty levied by the Internal Revenue Service (IRS). “Patient Protection and Affordable Care Act” Pub. L. No. 111-148, § 1501, 124 Stat. 119, 242 (March 23, 2010).
    15. The Employer Mandate represents a PPACA provision that required large employers (i.e., employers with an average of at least 50 full-time employees over a calendar year), with certain exceptions, to offer health insurance coverage to its employees, or face a financial penalty levied by the IRS. “Patient Protection and Affordable Care Act” Pub. L. No. 111-148, § 1513, 124 Stat. 119, 253 (March 23, 2010).
    16. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, §§ 205, 2710A (March 20, 2017).
    17. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, § 112 (March 20, 2017).
    18. “American Health Care Act: Budget Reconciliation Recommendations of the House Committees on Ways and Means and Energy and Commerce, March 9, 2017” Congressional Budget Office, Cost Estimate, March 13, 2017, https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/americanhealthcareact.pdf (Accessed 5/12/2017) p. 6.
    19. Report, Committee on Rules, U.S. House of Representatives, 115th Congress, May 3, 2017 (altering “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session [March 20, 2017]). Under 42 U.S.C. § 300gg-3(b)(1), a “preexisting condition exclusion” is a “limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before such date.” 42 U.S.C. § 300gg-3(b)(1) (2015). Further, 45 C.F.R. § 144.103 defines a “condition” and “medical condition” as “any condition, whether physical or mental, including, but not limited to, any condition resulting from illness, injury (whether or not the injury is accidental), pregnancy, or congenital malformation”; however, this definition excludes genetic information. 45 C.F.R. § 144.103 (2016).
    20. Report, Committee on Rules, U.S. House of Representatives, 115th Congress, May 3, 2017 (altering “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session [March 20, 2017]).
    21. “Patient Protection and Affordable Care Act” Pub. L. No. 111-148, § 1201, 124 Stat. 119, 155 (March 23, 2010).
    22. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, § 135 (March 20, 2017).
    23. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, § 203 (March 20, 2017).
    24. “Two Changes Needed to Make Ryancare’s Tax Credits Work for Blue Collar Americans” By Avik Roy, Forbes, March 19, 2017, https://www.forbes.com/sites/theapothecary/2017/03/19/two-changes-needed-to-make-ryancares-tax-credits-work-for-blue-collar-americans/#3a0806a72ba1 (Accessed 5/12/17).
    25. “American Health Care Act of 2017” H.R. 1628, 115th Congress, 1st Session, §§ 207, 211 (March 20, 2017).
    26. Letter from James L. Madara, MD, to The Honorable Kevin Brady, The Honorable Greg Walden, The Honorable Richard Neal, and The Honorable Frank Pallone, March 7, 2017, available at https://www.ama-assn.org/sites/default/files/media-browser/public/washington/ama-letter-on-ahca.pdf (Accessed 5/15/17).
    27. “AMA, AARP oppose latest Obamacare repeal effort” By Tami Luhby, CNN (April 27, 2017), http://www.cnn.com/2017/04/27/politics/macarthur-amendment-ama-aha-aarp-obamacare/ (Accessed 5/15/17).
    28. “Blue Shield CEO Says GOP’s ‘Flawed’ Health Bill Would Harm Sicker Consumers” By Chad Terhune, Kaiser Health News, May 3, 2017, http://khn.org/news/blue-shield-ceo-says-gops-flawed-health-bill-would-harm-sicker-consumers/ (Accessed 5/12/17).
    29. Letter from Joyce A. Rogers to The Honorable Greg Walden, The Honorable Frank Pallone, The Honorable Kevin Brady, and The Honorable Richard Neal, March 7, 2017, available at http://www.aarp.org/content/dam/aarp/politics/advocacy/2017/03/aarp-letter-to-congress-on-american-healthcare-act-march-07-2017.pdf  (Accessed 5/15/17); “AMA, AARP oppose latest Obamacare repeal effort” By Tami Luhby, CNN (April 27, 2017), http://www.cnn.com/2017/04/27/politics/macarthur-amendment-ama-aha-aarp-obamacare/ (Accessed 5/15/17).
    30. Letter from Nancy A. Brown to The Honorable Paul Ryan and the Honorable Nancy Pelosi, March 23, 2017, available at http://www.heart.org/idc/groups/ahaecc-public/@wcm/@adv/documents/downloadable/ucm_492861.pdf (Accessed 5/15/17).
    31. “House Passes Measure to Repeal and Replace the Affordable Care Act” By Thomas Kaplan and Robert Pear, New York Times (May 4, 2017), https://www.nytimes.com/2017/05/04/us/politics/health-care-bill-vote.html (Accessed 5/15/17); “While House passes GOP health-care bill, Senate prepares to do its own thing” By Sean Sullivan, Paige Winfield Cunningham and Kelsey Snell, Washington Post (May 4, 2017), https://www.washingtonpost.com/powerpost/if-house-passes-gop-health-care-bill-a-steeper-climb-awaits-in-the-senate/2017/05/04/26a901da-30bd-11e7-8674-437ddb6e813e_story.html?utm_term=.4495f779de56 (accessed 5/15/17).
    32. “Schumer: House ObamaCare repeal bill can't pass Senate” By Jordain Carney, The Hill (May 3, 2017), http://thehill.com/blogs/floor-action/senate/331730-schumer-house-obamacare-repeal-bill-cant-pass-senate (Accessed 5/15/17); “House Obamacare repeal bill faces Senate makeover” By Al Weaver and Susan Ferrechio, Washington Examiner (May 4, 2017), http://www.washingtonexaminer.com/house-obamacare-repeal-bill-faces-senate-makeover/article/2622082 (Accessed 5/15/17).
    33. In order to pass any healthcare repeal measures without Democratic support, the Senate will have to pass the bill through “reconciliation” (a budgetary tool) prior to the end of the fiscal year. “House Obamacare repeal bill faces Senate makeover” By Al Weaver and Susan Ferrechio, Washington Examiner (May 4, 2017), http://www.washingtonexaminer.com/house-obamacare-repeal-bill-faces-senate-makeover/article/2622082 (Accessed 5/15/17).
    34. Only 31% of respondents in an online poll conducted by YouGov and the Huffington Post were in favor of the House version of the AHCA. “YouGov Poll” YouGov and Huffington Post (May 6, 2017), http://big.assets.huffingtonpost.com/tabsHPHealthCareReform20170505.pdf (Accessed 5/15/17).
    35. “Trump expects some 'great additions and changes' in Senate version of healthcare bill” By Kimberly Leonard, Washington Examiner (May 13, 2017), http://www.washingtonexaminer.com/trump-expects-some-great-additions-and-changes-in-senate-version-of-healthcare-bill/article/2623042 (Accessed 5/15/17); “Trump says Obamacare 'dead' after GOP health bill passes House” By Benjamin Siegel and Veronica Stracqualursi, ABC News (May 4, 2017), http://abcnews.go.com/Politics/house-passes-obamacare-replacement-bill/story?id=47200247 (Accessed 5/15/17).

    Robert James Cimasi

    Health Capital Consultants

    Robert James Cimasi, MHA, ASA, FRICS, MCBA, CVA, CM&AA, serves as Chief Executive Officer of health capital consultants (HCC), a nationally recognized healthcare financial and economic consulting firm headquartered in St. Louis, MO, serving clients in 49 states since 1993. Mr. Cimasi has over 35 years of experience in serving clients, with a professional focus on the financial and economic aspects of healthcare service sector entities including: valuation consulting and capital formation services; healthcare industry transactions, including joint ventures, mergers, acquisitions, and divestitures; litigation support and expert testimony; and certificate-of-need and other regulatory and policy planning consulting. Mr. Cimasi is a nationally known speaker on healthcare industry topics, the author of several books, the latest of which include: “The Adviser's Guide to Healthcare – 2nd Edition,” co-authored with Todd Zigrang [2015 - AICPA]; “Healthcare Valuation: The Financial Appraisal of Enterprises, Assets, and Services” [2014 – John Wiley & Sons]; and, “Accountable Care Organizations: Value Metrics and Capital Formation” [2013 - Taylor & Francis, a division of CRC Press]. He is also the author of numerous additional chapters in anthologies; books, and legal treatises; published articles in peer reviewed and industry trade journals; research papers and case studies; and, is often quoted by healthcare industry press.  He may be reached at [email protected].

    Todd A. Zigrang

    Health Capital Consultants

    Todd A. Zigrang, MBA, MHA, FACHE, ASA, serves as President of health capital consultants (HCC), where he focuses on the areas of valuation and financial analysis for hospitals, physician practices, and other healthcare enterprises. He has over 20 years of experience providing valuation, financial, transaction and strategic advisory services nationwide in over 1,000 transactions and joint ventures involving acute care hospitals and health systems; physician practices; ambulatory surgery centers; diagnostic imaging centers; accountable care organizations, managed care organizations and other third-party payors; dialysis centers; home health agencies; long-term care facilities; and numerous other ancillary healthcare service businesses. Mr. Zigrang is the co-author of “The Adviser’s Guide to Healthcare – 2nd Edition” [AICPA - 2015], numerous chapters in legal treatises and anthologies, and peer-reviewed and industry articles such as The Accountant’s Business Manual (AICPA); Valuing Professional Practices and Licenses (Aspen Publishers); Valuation Strategies; Business Appraisal Practice; and NACVA QuickRead. Additionally, Mr. Zigrang has served as faculty before professional and trade associations such as the ABA; the American Society of Appraisers (ASA); the National Association of Certified Valuators and Analysts (NACVA); the Physician Hospitals of America (PHA); the Institute of Business Appraisers (IBA); the Healthcare Financial Management Association (HFMA); and, the CPA Leadership Institute.  He may be reached at [email protected].

    Jessica L. Bailey-Wheaton

    Health Capital Consultants

    Jessica L. Bailey-Wheaton, Esq. serves as Vice President & General Counsel of Health Capital Consultants (HCC), where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the Fair Market Value and Commercial Reasonableness of transactions pertaining to healthcare enterprises, assets and services. Ms. Bailey-Wheaton is a member of the Missouri and Illinois Bars and holds a J.D. with a concentration in Health Law, from Saint Louis University School of Law, where she served as Fall Managing Editor for the Journal of Health Law & Policy.  She may be reached at [email protected].