Trending in DC – What’s Next for the Affordable Care Act?

As promised, the U.S. House of Representatives voted to repeal the Affordable Care Act on Feb. 3.  

It was the 56th time the House has voted to repeal or amend the act.  This vote is consistent with statements many Republican House members made during their campaigns last year.  If the bill passes in the Senate, President Obama has already promised a veto.

Congressional Republicans are already working on a replacement plan for the health care law.  Senators Orrin Hatch (R-UT) and Richard Burr (R-NC), and Representative Fred Upton (R-MI) proposed legislation that can replace the Affordable Care Act if it is repealed. Their plan is called the Patient Choice, Affordability, Responsibility and Empowerment (CARE) Act.  The act outlines areas where Republicans want to amend the Affordable Care Act.

In the CARE Act, a refundable tax credit would be given to lower and middle-income families to purchase private health care coverage of their choice.  Employees of small businesses would also qualify for the tax credit.

Like the Affordable Care Act, the new proposal would not allow insurers to refuse to insure patients based on pre-existing conditions.  Individuals could stay on their parents’ plans until they are 26 years old.  Insurance companies would also be banned from imposing lifetime limits on consumers, and age-rating changes would be made so that costs would be lower for younger people.  Additionally, all of the tax increases from the Affordable Care Act, including such items as the medical device tax, health insurance tax, and pharmaceutical tax would end.

It may be difficult to unite the Republican Party around a single alternative to the Affordable Care Act.  House Speaker John Boehner stated that the plan would be part of the conversation on replacing the Affordable Care Act, and Senate Majority Leader Mitch McConnell has not yet commented on the plan, even when asked directly.

The real work on the Affordable Care Act will take place after the bill to repeal the ACA has played out, either in the Senate or if vetoed by the president.  Then, Republicans will begin to work on making incremental changes to the law. There are some major aspects of the law that Republicans are interested in changing.

Repeal the medical device tax: The medical device tax is a 2.3% sales tax that applies to everything from tongue depressors to MRI machines.  The tax is forecasted to raise $29 billion in the next 10 years.  Device makers state that the tax will eliminate jobs and slow innovation.  There is bi-partisan support for eliminating this tax increase.  The last time the Senate considered the issue was in a vote on a nonbinding budget resolution in 2013 where 34 Democrats and all Senate Republicans showing their desire to repeal the tax.

Repeal the employer mandate or redefine what is a full-time worker: Currently, the Affordable Care Act requires that all employees working over 30 hours a week be offered health insurance.  This provision of the employer mandate has resulted in many employers deciding to reduce part-time worker hours to work no more than 29 hours per week.  While it has been delayed twice by the Obama Administration, the employer mandate could stifle economic growth if implemented and could end up hurting the employees it is intended to help.  While the Obama Administration is currently not enforcing the mandate, eventually it will need to be repealed by Congress if it is not going to be implemented. 

Repeal the “Cadillac” tax: This is an excise tax on employer-sponsored health plans.  Starting in 2018, a 40 percent levy will be imposed on employer-sponsored health plans that cost more than $10,200 per year for individuals or $27,500 for families.  To avoid the tax, many companies will need to provide plans with less coverage, passing the increased costs on to their employees. If the companies chose not to adjust their plans, many worry that employers will decrease employee compensation to offset the cost of the tax.  Labor unions have also opposed this tax, since many of them provide health insurance to their members.

Repeal the individual mandate:  Legislation proposed last month would repeal the individual mandate that requires most Americans to obtain health insurance or pay a penalty. The mandate is vital to the success of the Affordable Care Act; requiring young, healthy people to purchase health insurance keeps costs low for older and sicker Americans. Under the mandate, most Americans are required to maintain health coverage or face an escalating annual penalty that is scheduled to top out in 2016 at 2.5% of household income or $695 per person, whichever is higher.  While this part of the Affordable Care Act is not popular with Republicans, the Obama Administration views the cost sharing aspect of the individual mandate to be a key component to the success of the act and they will fight any attempts to lessen or repeal this provision.

While the probability of a full repeal and replace of the Affordable Care Act is extremely remote, it seems there is some space to negotiate on an incremental approach to address the most troublesome parts of the act.  The Obama Administration wisely front-loaded the most popular changes into the law, and these parts will not be undone.  However, other unintended consequences of the new law must now be addressed by Congress in a bi-partisan manner.  Hopefully, there will be room to negotiate on a few of these issues during the next few months.