In Focus: Patient Freedom Act Would Let States Retain the ACA

Under Cassidy-Collins bill, if states like the Affordable Care Act, they could keep it

Stephen Miller, CEBS By Stephen Miller, CEBS January 30, 2017
In Focus: Patient Freedom Act Would Let States Retain the ACA

Several Affordable Care Act (ACA) replacement bills have been floated by Republican senators and representatives this year, but the Patient Freedom Act (PFA), introduced on Jan. 23 as S. 191, is drawing more attention than others due to its novel approach. In an effort to garner at least some Democratic votes in Congress, the measure would allow states that like the Affordable Care Act to keep it.

The measure, sponsored by Senators Bill Cassidy, R-M.D., and Susan Collins, R-Maine, along with Shelley Moore Capito, R, W.V., and Johnny Isakson, R-Ga., would repeal the ACA's individual and employer mandates, the actuarial value requirements and obligations to cover specific treatments and services—and then allows states to choose among three options:

  • Option 1—Reinstate the ACA, including its mandates and other requirements, along with access to the federal marketplace including federal premium tax credits and cost-sharing subsidies—but only funded at a level of 95 percent of the amounts that would have been available under the ACA.

  • Option 2—Adopt a new "state and market-based alternative" that provides guaranteed coverage, including for those with pre-existing conditions. Individual states could continue to receive funding equal to 95 percent of federal premium tax credits and cost-sharing subsidies under the current ACA, as well as the federal match for Medicaid expansion. But under the PFA, the cost-sharing subsidies would be deposited in newly created Roth Health Savings Accounts (Roth HSAs) owned by individual accountholders. Roth HSA funds that are not spent on qualified medical expenses would be taxable and, for those under the age of 65, subject to an additional 10 percent penalty. Individuals could also make contributions to their Roth HSA but with post-tax dollars (unlike standard HSAs, which are funded with pretax dollars) and within set limits.
  • Option 3—Design an alternative solution to regulate insurance markets without federal assistance for residents not eligible for Medicaid. Coverage would still be subject to certain provisions held over from the ACA, including coverage of adult children until age 26, a ban on lifetime and annual limits, and a prohibition against pre-exiting conditions exclusions, among others.

The bill's sponsors posted the text of the bill, a press release, a one-page description and a section-by-section summary. Below is a roundup of some of the media coverage.

ACA Replacement Offers State Options, Roth HSAs

Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va., provides an overview of the proposed legislation. He comments, "It has become increasingly clear in recent days that Republicans are trying to find a way to couple ACA repeal with ACA replacement. The PFA is an attempt to build a replacement plan on Republican principles of devolution of responsibility to the states and deregulation, but in a way that might appeal to some Democrats. The bill, however, appears to have been rushed into legislative language without adequate consideration of how it would actually work and what it would cost. It may form a basis for discussion, but it is not ready for enactment."
(Health Affairs)

ACA Proposal Poses Challenges for Multistate Employers

The PFA could be problematic for multistate employers, especially for those with self-insured plans, according to Chatrane Birbal, the Society for Human Resource Management's senior advisor for government relations. Self-insured employer plans are regulated by the Employee Retirement Income Security Act (ERISA) and are not subject to state insurance regulations; but the bill doesn't seem to recognize ERISA preemption, she said. ERISA has provided employers with a workable framework for employee benefits, allowing them to offer a uniform set of benefits to employees, Birbal noted, adding that "SHRM believes that the flexibility and certainty of the ERISA framework has been essential to the success of the employer-based system and should be maintained."

Replacement Plan Lets Liberal States Keep Obamacare

Cassidy-Collins gives states, under option 2, the opportunity to create a default catastrophic health insurance plan with low premiums and a high deductible into which states could automatically enroll uninsured residents. The premiums would theoretically be low enough to have the tax credit cover the entire bill. States that go down this path would no longer have an individual mandate but would have the option to auto-enroll individuals into high-deductible "catastrophic" coverage. Those automatically enrolled would have to actively opt out of insurance rather than proactively sign up, but the exact logistics of administering this type of program haven't been sorted out yet.

A Path to 60 Votes?

Cassidy suggested that keeping the health care law as an option could help garner the 60 votes it would need to pass a replacement bill in the Senate. The GOP has 52 votes in the Senate, and 60 are necessary to break a Democratic filibuster. But the bill could be a hard sell for staunch conservatives because it would not fully repeal the controversial 2010 law. The plan would also keep in place, at least initially, many of the health care law's revenue streams—including the unpopular Cadillac tax and the health insurance tax—to pay for its changes.
(Roll Call)

SHRM: 'Repeal and Replace' Must Strengthen Employer-Based Health Care

The Society for Human Resource Management is urging Congress to maintain the effectiveness of the employer-based health care system, as legislators begin to supplant the health care reform law.
(SHRM Online)

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Another Contender: Rand Paul’s ACA Replacement Plan

On Jan. 25, Sen. Rand Paul, R-Ky., released details on a competing Republican ACA replacement measure, the Obamacare Replacement Act (S. 222). The Paul plan incorporates elements from other GOP proposals and among its provisions would:

  • Selectively repeal some ACA provisions, including the individual and employer mandates, the community rating restrictions, rate review, essential health benefit requirements, medical loss ratio requirements, and other mandates, but not the remainder of the ACA.
  • Change the employer tax exclusion to an income and payroll tax deduction, presumably capped, that would apply to all coverage.
  • Eliminate most restrictions on health savings accounts and allow the use of HSA funds to purchase insurance, which would not have to be high-deductible coverage. Permit individuals to opt for a tax credit of up to $5,000 to fund their HSA in lieu of a tax deduction, which would be of more value to lower-income individuals.
  • Encourage association health plans in both the individual and small group market.

(Health Affairs)

Related SHRM Online Articles:

SHRM Health Care Reform Resource Page

Related Resource:

Four GOP Legislative Alternatives to the ACA, United Actuarial Services, February 2017

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