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AHCA Manager's Amendments Will Likely Cut Deficit Reduction in Half

Mar 21, 2017 | Health Care

The House Rules Committee released two manager's amendments to the American Health Care Act (AHCA) late Monday evening in advance of their scheduled hearing for considering the bill on Wednesday. The two amendments are being billed by House GOP leadership as technical and policy changes that will tighten rules for Medicaid eligibility, speed up the repeal of the Affordable Care Act's (ACA) tax increases, and allow the Senate to consider changes to the structure of the new tax credits for older individuals. As far as we can tell, these changes seem likely to cut the deficit reduction in the bill by roughly half over the next decade and even more over the second decade. In terms of coverage impact, it does not appear that these amendments by themselves would change the original bill's coverage impact much (at least without more details on the tax credit changes), but it seems likely that coverage would be further reduced due to the Medicaid changes.

Medicaid Changes

The manager's amendments would most significantly make various tweaks to the legislation's Medicaid reform in order to entice conservatives and the New York congressional delegation. States would be allowed to institute a work requirement similar to the one included in the Temporary Assistance for Needy Families (TANF) program and would receive an increased match for administrative costs for implementing the work program. Additionally, the amendments would prohibit any state that chooses to expand Medicaid in the future from receiving the higher matching rate, and they eliminate all federal funding for Medicaid assistance to individuals and families with income above 133 percent of the federal poverty line (some states have higher thresholds for Medicaid eligibility).

The amendments would increase the growth rate of the AHCA per-capita Medicaid caps for the elderly and disabled populations from the original medical inflation index to medical inflation plus one percentage point – which could reduce savings from the per-capita caps significantly. The amendments would also allow states to choose between adopting the per-capita caps or accepting a block grant for Medicaid funding; however, the block grants would grow less generously (at standard inflation rather than medical inflation – a significantly slower-growing index). While the Congressional Budget Office (CBO) has said that some states may choose a block grant option depending on the details, it seems unlikely that states would choose this block grant option because of the slower growth rate. States would likely only choose it if it was financially beneficial to them, most likely if they expect enrollment to decline, meaning that the block grant option could potentially increase spending modestly for states that adopt it.

The amendments would also make a slightly obscure change to Medicaid funding that targets the state of New York. In New York, Medicaid funding comes from the federal portion, a state portion, and a portion levied onto New York counties. These amendments would prohibit state lawmakers in New York from levying funds from counties outside of New York City by denying matching funds for county spending.

ACA Tax Repeal

The manager's amendment would hasten the timeline for repeal of the ACA's taxes by one year, from a 2018 to a 2017 start date. The "Cadillac" tax on high-cost health insurance plans, which would only be delayed until 2025 under the AHCA, would be delayed one year further by these amendments to 2026. We estimate that these tax changes would likely cost around $60 billion over the next decade.

New Tax Credit Changes

One of the key motivations for passing these amendments lies in the ability for the Senate to make changes to the tax credit structure, particularly for older individuals. Under the AHCA, individuals between ages 50 and 59 would receive a $3,500 refundable tax credit, while individuals 60 and over would receive one for $4,000. These amendments don't directly tinker with those amounts, but they do lower the threshold for the medical expense deduction from 7.5 percent in the AHCA to 5.8 percent, a move that will likely cost $85 billion. However, policymakers are currently signaling that this move is really just a placeholder for the Senate to take the lead on changing the structure of tax credits by using savings from reversing this provision to offset the costs of making tax credits more generous; without the provision, an amendment making tax credits more generous could trigger a 60-vote point of order for reducing the amount of deficit reduction in a reconciliation bill. In addition, the amendments remove the provision that would have allowed excess funds from the credits to be deposited into Health Savings Accounts over concerns that this would inadvertently allow taxpayer funding of abortion.

Administrative Funding

The manager's amendments provide a mandatory appropriation of $1 billion for the Department of Health and Human Services to implement the provisions of the AHCA.

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With these changes included, we roughly estimate that the amended version will reduce deficits by between $150 billion and $200 billion, as opposed to the $337 billion in the original bill.  As we have noted previously, the relatively modest amount of deficit reduction in AHCA compared to the savings from ACA repeal and Medicaid reforms in previous balanced budget resolutions will make it harder for Congress to balance the budget. The changes in the manager's amendment make that task even harder.

How these changes affect coverage is even more uncertain, but the changes to Medicaid will likely reduce coverage. If the change in the deduction for medical expenses is replaced in the Senate with enhancements to the tax credits for older individuals, coverage would likely increase. But without more details on how the credits will be changed in the Senate, we cannot estimate how many more or fewer individuals would be covered under these amendments.