Expanding Obamacare Tax Credits, and Encouraging States to Expand Medicaid While Punishing Those That Don’t (H.R. 1425)

What is H.R. 1425?

(Updated September 14, 2020)

This bill — the Patient Protection and Affordable Care Enhancement Act — would expand eligibility for premium tax credits & increase the size of the tax credits; incentivize states to expand Medicaid & penalize those that don’t; increase funding for Affordable Care Act (ACA or Obamacare) outreach; and seek to lower prescription drug rates. A breakdown of its provisions can be found below.

HEALTHCARE COSTS & PREEXISTING CONDITIONS

This section would expand eligibility for premium tax credits used to purchase insurance on the Obamacare exchanges beyond 400% of the federal poverty line (FPL), and would increase the size of the tax credits for individuals and families. It would also reverse the Trump administration’s changes for determining annual updates to premium tax credit eligibility & maximum out-of-pocket limits.

The so-called “family glitch”, whereby an individual is locked out of receiving subsidized coverage for their family because their cost of self-only coverage on an exchange doesn’t exceed 9.5% of annual income, would be fixed to consider the cost of obtaining family coverage.

States would be provided with $200 million in federal funds to establish state-based health insurance exchanges if they choose to do so. A Health Insurance Affordability Fund would be established with $10 billion in annual funding to give states the option of establishing a reinsurance program or using the funds to provide financial assistance to reduce out-of-pocket costs for individuals enrolled in qualified health plans. It would require the Centers for Medicare & Medicaid Services (CMS) to establish and implement a reinsurance program in states that don’t apply for federal funding.

This bill would also repeal an October 2018 guidance issued by the Dept. of Health and Human Services (HHS) related to “State Relief and Empowerment Waivers” under the ACA. The guidance loosened restrictions of Section 1332 state innovation waivers, which became available to states in January 2017 under the ACA, by expanding the definition of coverage to include short-term plans and allowing existing state legislation about enforcing Obamacare satisfied the waiver requirement.

HHS would be required to conduct consumer outreach and enrollment educational activities for the ACA exchanges and would receive $100 million for this purpose each year. The outreach would be culturally & linguistically appropriate to the needs of the populations being served as well as be provided to populations residing in high health disparity areas. It would also receive $100 million per year for the Navigator program, which seeks to raise awareness of marketplace plans & help people apply for coverage & subsidies.

HHS & the state regulatory authority would be required to ensure that any excessive, unjustified, or unfairly discriminatory rates on the exchanges are corrected before, or as soon as possible after, implementation through mechanisms such as denying rates, modifying rates, or requiring rebates to consumers. HHS would be able to apply civil monetary penalties to health insurers that fail to comply with a corrective action taken by HHS and may make the plan involved eligible for classification as a qualified health plan.

Additionally, the Government Accountability Office (GAO) would be required to examine whether HHS has been conducting maintenance of healthcare.gov during annual open enrollment in order to minimize any disruptions to the use of the website.

MEDICAID EXPANSION

This section would incentivize Medicaid expansion by providing for 100% federal medical assistance percentage (FMAP) for Medicaid expansion beneficiaries for the first three after a state expands Medicaid. It would then decline to 95% FMAP in year four, 94% FMAP in year five, and 93% FMAP for year six, while in year seven & beyond it would decline to 90%. This FMAP schedule is what was available to states that expanded Medicaid, and would give parity to states that chose to expand Medicaid after 2014.

States that choose not to expand Medicaid would be punished with a 0.5% reduction in FMAP for each quarter of non-expansion, with a maximum reduction of 10%. States that choose not to expand Medicaid would also be required to submit an annual report to HHS and Congress providing a detailed description of its Medicaid program and uninsured rates, including the number of uninsured individuals in the state at or below 138% of the federal poverty line, information on current state eligibility levels for different categories of beneficiaries, a description of uncompensated hospital care costs & the sources of those costs, and a detailed description of any efforts underway to provide care to those without health insurance.

The ACA’s increased payments for primary care physicians who treat Medicaid beneficiaries would be reauthorized for five years, and they would be required to be compensated at no less than the Medicare rate.

Individuals determined to be eligible for Medicaid or the Children’s Health Insurance Program (CHIP) beneficiaries would be eligible for 12 consecutive months, and wouldn’t lose eligibility due to minor fluctuations in their income throughout the year. Women would remain eligible for Medicaid or CHIP for one year postpartum so that women with medical complications related to pregnancy can be prevented, detected, and treated.

Funding for CHIP would be permanently authorized, which would prevent the expiration of funding for CHIP at the end of fiscal year 2027. Policies that facilitate enrollment in CHIP and monitor quality would be permanently extended. States would have the option to increase Medicaid and CHIP eligibility levels for children to up to 300% of FPL without receiving a waiver.

LOWERING PRESCRIPTION DRUG PRICES

This section would end the ban on Medicare negotiating directly with drug companies and create new tools to force drug companies to come to the table to negotiate on drug prices (including for newly-launched drugs) with the Health and Human Services (HHS) Secretary. Subsequently, it would also give all Americans access to the federally negotiated lower drug prices known as the maximum fair price (MFP). A given drug’s negotiated price would remain in place until it has two or more generic competitors.

To stop drug companies from charging American customers a different, higher price for the same drug as compared to foreign customers, this bill would limit the maximum price for any negotiated drug to be in line with the average price in a country comparable to the U.S. For comparison purposes, this bill would look to six countries: Canada, the United Kingdom, Germany, France, Australia, and Japan.

Drug companies that aren’t in compliance with this requirement would face an escalating penalty which starts at 65% and increases by 10% for every quarter of non-compliance to a maximum of 95%.

A $3 billion Fair Price Negotiation Implementation Fund would be established to carry out this section.

Argument in favor

This bill would expand the availability & value of Obamacare’s premium tax credits and increase marketing for the exchanges to encourage people to enroll. It would also encourage more states to expand Medicaid and give Medicare the power to negotiate drug prices.

Argument opposed

This partisan bill expands Obamacare’s tax credits in a fiscally irresponsible way and would try to use the threat of federal funding cuts to coerce states into expanding Medicaid. Even worse, it is a backdoor attempt end the longstanding ban on the use of federal funding for abortions.

Impact

People buying insurance on ACA exchanges; prescription drug buyers; insurance providers; states that haven’t expanded Medicaid; and relevant federal agencies including HHS & CMS.

Cost of H.R. 1425

The CBO estimates that enacting this bill would increase the deficit by $170.8 billion over the 2020-2025 period.

Additional Info

In-Depth: House Energy & Commerce Committee Chairman Frank Pallone (D-NJ) offered the following statement on the introduction of this package:

“The American people are anxious about their health and their economic future, and this legislation provides critical relief by making health care and prescription drugs more affordable. It’s commonsense legislation that takes the savings from lower prescription drug costs and invests it into lowering health care premiums and expanding access to affordable care. All around, that’s a win for the American people. We must take action to lower these soaring costs, expand access to health care, rein in the Trump Administration’s efforts to sabotage the ACA and protect people with pre-existing conditions.”

House Ways & Means Committee Chairman Richard Neal (D-MA) added:

“While Republicans continue their efforts to dismantle America’s health care system in the midst of a pandemic, Democrats are putting forward a plan to expand access to care and lower costs. We slash prescription drug prices, create larger premium tax credits available to more people, and devote funding to reduce out-of-pocket costs for everyone. With this legislation, we also take important steps to ensure patients are protected. The bill encourages remaining states to expand Medicaid and support vulnerable Americans, puts an end to the expansion of ‘junk’ insurance plans, and prevents states from using federal waivers to allow discrimination against patients with pre-existing conditions. And importantly, we also address the inequities in care that COVID-19 has brought to the fore through targeted assistance for Hispanic, Black, and Native Americans. For the health and financial security of workers and families across the country, Congress needs to pass this legislation.”

Energy & Commerce Committee Ranking Member Greg Walden (R-OR) & Rep. Michael Burgess (R-TX) explained Republicans’ opposition to this bill in its committee report:

“This bill provides $100 billion over 10 years for States to establish reinsurance programs strictly for individuals enrolled in the Patient Protection and Affordable Care Act’s (PPACA) qualified health plans (QHPs). The bill is not paid for, nor does it contain a State match or State allocation formula, delegating the latter to the Secretary of the Department of Health and Human Services (HHS) like the transitional reinsurance program did. Finally, the bill does not include language affirming the long-standing consensus that Federal dollars should not pay for abortion services.

Walden & Burgess added that during the 115th Congress when Republicans controlled the House, they offered what they believe to be a better plan for state reinsurance under the American Health Care Act:

“Congress has taken recent steps to provide States with reinsurance opportunities. In the 115th Congress, the House-passed H.R. 1628 American Health Care Act, included the Patient and State Stability Fund. This provision would have provided States with flexibility and resources to cut out-of-pocket costs like premiums and deductibles, promote access to health care services, and repair insurance markets. For States that chose not to access the available funding, the Federal government would have established and implemented a reinsurance program. In addition to reinsurance, the Patient and State Stability Fund’s uses of funds included: helping high-risk individuals enroll in health insurance coverage; promoting participation in the individual market and small group market; and providing assistance to reduce out-of-pocket costs, such as copayments, coinsurance, premiums, and deductibles. The fund included a modestly phased-in State match, as well as a State allocation formula based on each State’s previously incurred claims. The Patient and State Stability Fund was fully paid for and included language affirming the long-standing consensus that Federal dollars should not pay for abortions services.”

The White House issued a veto threat against this legislation in the event that it were to reach President Donald Trump's desk, which read in part:

"The Administration strongly opposes House passage of H.R. 1425. This bill attempts to exploit the coronavirus pandemic to resuscitate tired, partisan proposals that would send hundreds of billions of dollars to insurance companies in order to paper over serious flaws in Obamacare. Furthermore, H.R. 1425 would pay for this bailout by imposing price controls that undermine the American innovation the entire globe is depending on to deliver the vaccines and therapeutics needed to respond to the coronavirus... While any time is an inopportune time to dramatically undermine the development of innovative medicines, H.R. 1425 is even more imprudent given the current focus on developing vaccines and therapeutics rapidly to help America and the world combat the coronavirus. To take such an action simply to double down on the same expensive, inefficient, and bureaucratic approach to health coverage that the American people endured for the past decade makes it even more misguided and counter to the most urgent needs of the country."

This legislation passed the House Energy & Commerce Committee on a party-line vote of 30-22. 

Media:

• House Energy & Commerce Committee Democrats Press Release

• House Energy & Commerce Committee Democrats Section-by-Section

• House Energy & Commerce Committee Report

• CBO Cost Estimate

• White House Statement of Administration Policy (Opposed)