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The Better Care Reconciliation Act


ON JUNE 22, 2017, the U.S. Senate unveiled a draft version of its highly anticipated healthcare reform bill dubbed the Better Care Reconciliation Act (BCRA). Like the House of Representative’s American Health Care Act (AHCA), the BCRA represents Republican-led efforts to “repeal and replace” the Patient Protection and Affordable Care Act (ACA) enacted during the Obama administration. While the Senate’s bill leaves many of the ACA’s provisions intact, it limits their effectiveness by significantly decreasing federal funding. The Senate has not yet mustered sufficient support to pass the BCRA, due in part to public dissatisfaction stemming from a Congressional Budget Office (CBO) report issued on June 26, 2017.

The CBO’s comprehensive analysis found that the BCRA would reduce the cumulative federal deficit by $321,000,000,000 between 2017 and 2026, but would also leave 22 million Americans uninsured by 2026. Consequently, Senate leadership has delayed voting until after the July 4 recess. Whether the BCRA will ultimately become law (at least in its current form) is uncertain. Nevertheless, its enormous ramifications for the healthcare landscape necessitate careful study. Below we outline significant changes.

Insurance Market

The BCRA outlines several changes to the insurance market including subsidies, mandates, interim relief for States, tax repeal, health savings accounts and defunding of Planned Parenthood. Details on each of these areas are outlined below.

Insurance Subsidies

As the law stands, applicable taxpayers with incomes between 0-400% of the federal poverty level qualify to receive a tax credit to subsidize the cost of their health insurance premiums. Starting in 2020, premium tax credits will be tied to age, geography, and income for individuals who earn between 0-350% of the federal poverty level. States can design their Medicaid plans to cover individuals who fall outside of this spectrum. Additionally, tax credits under the BCRA would be benchmarked to a less generous plan than the silver plans offered under the ACA. The silver plans under the ACA have an actuarial value of 70%, meaning enrollees pay for an average of 30 percent of their health care expenses.

Under the BCRA, individuals receiving a tax credit must enroll in a plan with a 58% actuarial value, meaning they will pay an average of 42% of their health care expenses.

Individual and Employer Mandates

The BCRA would effectively repeal the ACA’s individual and employer mandates by eliminating the penalties for not acquiring minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate).

Interim Relief

The BCRA would establish a “short-term” fund to help States transition into the post-ACA regime. For each calendar year 2018 and 2019, the CMS Administrator would disperse $15 billion among the States to provide financial subsidies to insurance providers to help stabilize insurance premiums and “to promote state health insurance market participation and choice in plans offered in the individual market.” The money allocated to the fund would decrease to $10 billion for calendar years 2020 and 2021.

Additionally, the BCRA would create a similar “long-term” fund through calendar year 2026. Money allocated to this fund would range between $4 billion and $14 billion annually and (in addition to the purpose cited for the short-term fund) would be used to provide financial assistance to help high-risk individuals enroll in a health insurance plan in the individual market; to provide payments to health care providers for the provision of health care services; and to provide subsidies to help reduce out-of-pocket costs for enrollees in the individual market.

Tax Repeal

The BCRA would repeal or reduce many of the taxes implemented by the ACA at various intervals, including: the net investment tax, the prescription medicine tax, the over-the-counter medicine tax, the medical device excise tax, the chronic care tax, and the tanning tax. Taxes on distributions to health savings accounts (HSAs) not used for qualified medical expenses would decrease from 20% to 10%, and taxes on distributions to Archer HSAs would decrease from 20% to 15%. The BCRA would also lift the $2,500 contribution limitation on f lexible savings accounts. Additionally, it would delay the Medicare tax increase for high-income earners until 2022 and the Cadillac Tax for high-cost employer sponsored plans until 2026.

Health Savings Accounts (HSAs)

In addition to the HSA tax reductions, the BCRA would increase the HSA annual contribution limits for self-only and family coverage to match the out-of-pocket limits for HSA-qualified high deductible health plans (HDHPs). As a result, individuals filing single could contribute annual amounts of up to $6,500, and those with family coverage could contribute up to $13,100. The BCRA would also allow spouses, irrespective of the HSA owner, to make catch-up contributions to the same HSA. Finally, for eligible medical expenses, “as long as the HSA is established within 60 days of the date of coverage under the eligible high deductible health plan begins, any medical expenses incurred after the coverage date of the high deductible plan will be considered eligible medical expenses regardless that the expenses may be incurred prior to the establishment of the HSA.”

Defunding of Planned Parenthood and Similar Entities

For a one-year period, States cannot disperse federal funding to “prohibited entities,” defined as: (1) a not-for profit entity; (2) described as an essential community provider primarily engaged in family planning services, reproductive health, and related medical care; (3) providing abortions in cases that do not meet the Hyde amendment exception for federal payment; and (4) that received more than $350 million in Medicaid expenditures (both federal and state) in FY2014.

Medicaid Provisions

The BCRA outlines several changes to Medicaid provisions including presumptive eligibility, phase-out federal funding for Medicaid expansion, DSH-funding for non-expansion States, retroactive eligibility, safety net funding for non-expansion States, and more. Details are outlined below.

Presumptive Eligibility

Effective Jan. 1, 2020, hospitals will no longer have the option to offer presumptive eligibility to the Medicaid expansion population.

Phase-Out Federal Funding for Medicaid Expansion

The BCRA would retain the ACA adult expansion category as optional. However, beginning Jan. 1, 2020, the BCRA would gradually eliminate the enhanced federal funding for expansion states. By 2023, federal funding would only be available at the State’s normal matching rate. The Senate bill would also sunset the essential health benefits standards after Dec. 31, 2019, leaving states free to tailor coverage requirements for the expansion population.

DSH-funding for Non-Expansion States

To “restore fairness in DSH allotments,” the BCRA would: (1) waive scheduled DSH payment reductions in non-expansion states, and (2) increase DSH allotments in FY2020 for non-expansion states whose per capita FY2016 Medicaid DSH allotment amount was below the national average per capita FY2016 Medicaid DSH allotment amount. Presumably, all non-expansion states would have a per capita FY2016 Medicaid DSH allotment below the national average. Expansion States would not receive any reprieve from pending DSH payment cuts under the BCRA. The draft is unclear as to whether an expansion state could become a non- expansion state to qualify for these benefits.

Retroactive Eligibility

The BCRA would reduce retroactive eligibility for Medicaid coverage from three months to one.

Safety Net Funding for Non-Expansion States

The BCRA would allow non-expansion states to adjust payment amounts for safety net providers so long as the payment adjustment does not exceed the provider’s costs in furnishing health care services to its indigent, uninsured patients. Additionally, the federal medical assistance percentage applicable to the payment adjustments would increase to 100% in FY2018 through FY2021 and 95% in FY2022 with an annual cap of $2,000,000,000. Each non-expansion state’s annual allotment would be determined according to the number of individuals in the state with income below 138% of the federal poverty line in 2015 relative to the total number of individuals with income below 138% of federal poverty line for all the non-expansion states in 2015.

Eligibility Redeterminations

The Senate draft incentivize States to conduct Medicaid eligibility redeterminations for program enrollees at least once every 6 months by offering as consideration a 5% increase in its federal matching percentage for administrative activities.

Optional Work Requirement

The BCRA would permit states to impose a work requirement as a condition of Medicaid eligibility for nonelderly, non-pregnant, nondisabled enrollees. States would receive a 5 percentage point increase in their federal match for administrative activities for implementing this provision.

Provider Taxes

The Senate draft would gradually decrease the Medicaid provider tax threshold from the current rate of 6% to 5% by 2025.

Per Capita Cap Model

Under the BCRA, States would receive federal funding for their Medicaid programs through a per capita cap model starting in FY2020. Each state would select 8 consecutive quarters between FY2014 and the third quarter of FY2017 (subject to modification by the Secretary of Health and Human Services (HHS)) to serve as a base period to set targeted spending for each Medicaid enrollment category. The state’s targeted spending amounts would increase annually by the applicable annual inf lation factor. For fiscal years after 2024, the annual inf lation factor would drop to the consumer price index for all urban consumers.

In calculating the cap amounts, the BCRA would exempt certain state expenditures including DSH-payments, non-supplemental payments, and safety-net provider payment adjustments in non-expansion state as well as certain population groups such as CHIP enrollees, Indian Health Services beneficiaries, eligible individuals with breast or cervical cancer, partial benefit enrollees, and blind or disabled children aged 18 or younger.

If a state has excess aggregate medical expenditures for a fiscal year, the federal government can recoup the excess amount by lowering subsequent payments in the next fiscal year. Additionally, the Senate bill would impose a penalty on states with DSH allotments 6 times the national average as of FY2016 that also require political subdivisions to contribute to State Medicaid funding. To “promote program equity,” the BCRA also imposes a 2% downward adjustment in federal payments for states (certain “low density” population states excluded) whose per capita spending in a fiscal year exceeds the national mean by 25% or more.

Block Grant Option

Beginning in FY2020, states may forego federal funding through the per capita cap model if the HHS Secretary approves a State’s application to start a Medicaid Flexibility Program. Before the Secretary could approve an application, the State would need to make it publically available for a 30-day notice and comment period. Following approval, States would receive a block fund (a predetermined fixed amount of federal funding) to cover health expenses for non-elderly, nondisabled, non-expansion adults.

For the first fiscal year a state has a Medicaid Flexibility Program, the block fund amount would equal the State’s federal average medical assistance matching percentage for that year multiplied by the product of the target per capita medical assistance expenditures for the non-elderly, nondisabled, non-expansion adult enrollees and the number non-elderly, nondisabled, non-expansion adult enrollees in the category for the following fiscal year by the percentage increase in the state population over that one-year span. For subsequent years, States’ block grant amount would equal the amount from the previous fiscal year increased by an annual inflation adjustment factor.

States can obtain “rollover funds” if the state satisfies a maintenance of effort requirement and also retains the Medicaid Flexibility Program in the following fiscal year. States that fail to meet the maintenance of effort requirement would suffer a reduction in their block grant amounts for the next fiscal year. States that elect to receive federal funding through a Medicaid Flexibility Program would commit to at least one program period (five consecutive fiscal years), though states may terminate the program if the Secretary approves atransition plan.

Under a Medicaid Flexibility Program, States would still provide assistance to mandatory category enrollees. Additionally, the BCRA identifies mandatory services the funds would have to cover, including inpatient and outpatient hospital services, nursing facility services, family planning services and supplies, nurse midwifery services, and certified pediatric and family nurse practitioner services, among others. States would have the option to cover additional services.

Medicaid and CHIP Quality Bonuses

In FY2023 through FY2026, States that are able to satisfy a set of child and adult quality measures while also spending lower-than-expected aggregate Medicaid expenditures during an annual performance period would receive a bonus payment in the form of additional federal funding. The quality bonus payment allotments for all states would total $8,000,000,000 for the four-year period.

Grandfathering Certain Medicaid Waivers

The BCRA would allow states operating “grandfathered managed care waivers” to continue to furnish services under the waiver so long as the terms and conditions of the waiver are not modified. The relevant provision defines “grandfathered managed care waivers” as “a waiver or experimental, pilot or demonstration project relating to a state’s authority to implement a managed care delivery system, which (1) has been approved by the HHS Secretary under SSA Section 1915(b), SSA Section 1115(a)(1), or SSA Section 1932, as of Jan. 1, 2017; and (2) has been renewed by the HHS Secretary at least once.”


The BCRA also includes three special changes that are outside of the insurance market and Medicaid.

These three are:
Opioid Crisis

The Senate bill would appropriate $2 billion for FY2018 to the HHS Secretary to assist states in combating the opioid crisis. Funds would be available until expended.

Community Health Center Program

The BCRA would provide an additional $433 million in FY2017 to the Community Health Center Fund.

Age Variation in Insurance Premiums

Starting in FY2019, the BCRA would establish an age rating ratio of 5:1 for adults. As such, health insurers could charge a 64-year-old individual as much as five times the premium they would charge a 21-year-old individual for the same plan. Under the ACA, the rating ratio is set at 3:1.

Sidney Welch, Esq., practices in the Atlanta office of Polsinelli, a firm with 20 offices nationwide; Peter Critikos is a third-year law student at Emory University School of Law, also in Atlanta.


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