Here are some highlights of the revised Senate language released July 13:

The Better Care Reconciliation Act of 2017, Version 2.0 July 17, 2017 On July 13, Senate Republican leaders released a second working draft of the Senate version of H.R. 1628, the American Health Care Act (AHCA), the Better Care Reconciliations Act of 2017. Senate Majority Leader Mitch McConnell (R) has commented that the House AHCA failed to meet the Senate requirements to be considered for a reconciliation vote requiring only 51 votes to pass. This second iteration contains revised language to include two tax provisions from the Affordable Care Act (ACA) and some provisions that would help pay for low-income insurance premiums and is being sent to the Congressional Budget Office to see if it too meets the reconciliation standards. Once these procedural challenges have been met, the Senate plans to vote to amend H.R. 1628. Should the Senate pass the measure, it will be sent back to the House for its consideration. Competing Plan Senators Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) unveiled a competing proposal that would redirect ACA funding directly to the states. Under the Graham/Cassidy proposal: Federal money currently spent on the ACA health insurance an estimated $110 billion in 2016 would be given as block grants to the states. The individual mandate and employer mandate instituted under ACA would be repealed under Senate reconciliation rules that only require 50 votes, plus the Vice President. The ACA requirements covering pre-existing conditions would be retained. The ACA medical device tax would be eliminated but other ACA taxes would remain in place. Federal Medicaid funding to the states will continue to grow in a sustainable manner, adjusted for inflation. Provides additional flexibility to the states to ensure health care dollars are spent in a manner providing the most effective and efficient coverage based on their health care needs and populations. Federal funds would be restricted to health care spending only. These funds could be distributed by the states in the forms of tax credits, subsidies, health savings account premiums, and other means as the individual states see fit to meet their health care needs. The senators' proposal would repeal the ACA's individual and employer mandates, but retain the current law's requirement for coverage of those with pre-existing conditions. Under their plan, per Graham and Cassidy, "Medicaid funding to the states will continue to grow in a sustainable manner, adjusted for inflation." Here are some highlights of the revised Senate language released July 13: 1

ACA TAXES AND USE OF MEDICAL ACCOUNTS Repeal or Delays Certain ACA Taxes: Repeals or delays many of the ACA provisions that imposed new taxes including those on indoor tanning services, the medical device tax, the annual fee on certain health insurers, and manufacturers or importers of branded prescription. It also lifts the prohibition on using tax-advantage funds for over-the-counter medications beginning tax year 2017. Cadillac Tax: The new language delays implementation of the tax on employee health insurance premiums and health plan benefits, known as the Cadillac tax, until Jan. 1, 2026. Originally slated to begin in 2018, the Cadillac tax imposes an excise tax on high-cost employer sponsored insurance coverage more than a predetermined threshold. The tax is imposed on the coverage provider, typically the health insurance provider or the entity that administers the plan benefits. Tax on Indoor Tanning Services: Repeals the tax imposed on indoor tanning services beginning after Sept. 30, 2017. Alters Spending Arrangements and Health Reimbursement Arrangements: Strikes ACA language limiting health reimbursement arrangements from HSAs, Flexible Spending Accounts (FSAs), and Archer Medical Savings Accounts (MSAs) to only apply to prescribed drugs and insulin beginning after Dec. 31, 2016. Tax on Health Savings Accounts (HSA): Reduces the applicable tax rate imposed by the ACA on HSAs from 20 to 10 percent, and the tax rate on MSAs from 20 to 15 percent effective beginning tax year 2017. Purchase of Insurance from Health Savings Accounts: Amends the Internal Revenue Code of 1986 (IRC) to add that qualified medical expenses may include amounts paid for an account holder s children who are under the age of 27. Allows HSA funds to be used to pay premiums for a high deductible health plan for which no deduction is allowed under the IRC, is not an employer-sponsored plan to which the exclusion applies, and only for amounts that exceed any tax credit amounts allowed. The amendments would become effective in 2018. Repeal of Limitation on Contributions to FSAs: Strikes language in the IRC that limits contributions to health FSAs to $2,500 annually beginning after Dec. 31, 2017. Amends the Chronic Care Tax: Amends provisions in the IRC that lowers the threshold for medical expense deductions that are not reimbursable by insurance or otherwise from 10 to 7.5 percent of the individuals adjusted gross income. Maximum Contribution Limit to Health Savings Accounts (HSAs): Increases the HAS annual contribution limit for self only and family coverage to match the out-of-pocket limits for HAS-qualified high deductible health plans as of tax year 2018. The latest bill maintains a few ACA taxes including: a 3.8 percent tax on net investment, a 0.9 percent Medicare payroll tax and an insurance executive tax. The inclusion of these taxes generates around $235 billion in additional revenue. Health Insurance Coverage Treatment of Premium Tax Credits The bill would make changes to the premium tax credit eligibility criteria by changing the income eligibility to up to 350 percent of the federal poverty level (FPL) from the 2

current 100 to 400 percent of FPL, it makes changes to the eligibility criteria applicable to certain aliens, and prohibits individuals with access to employer sponsored coverage from becoming eligible for the credit. State Stability and Innovation Program Appropriates $15 billion fiscal year (FY) 2018 and 2019 and $10 billion for FY2020 and FY2021 to the Administrator of the Centers for Medicare and Medicaid Services (CMS) to fund arrangements with health insurance issuers to address disruptions in coverage and access and to respond to urgent health care needs within states. This new section would establish a Long-term State Stability and Innovation Program. Under the program states would be required to apply to the CMS administrator to receive federal funding to carry out activities including establishing a mechanism to provide financial assistance for enrolling high-risk individuals in the individual market who are anticipated to have high health care utilization, to stabilize premiums, or help reduce out-of-pocket costs. State Stability and Innovation Program Updates: Under new language the administrator of CMS would provide issuers 1 percent of funds appropriated to states where the cost of insurance premiums is at least 75 percent higher than the national average. The fund would also now allow the federal government to pay the states at their percentage minus the state s expenditures, making the federal percentage 100 percent reduced by the state s percentage for that year. Premiums Stabilization: To assist individuals in a high-risk pool that are participating in the individual market the government would provide $5 billion per year from 2019-2021 to help offset the costs of their higher premiums. HSAs: New language would allow individuals to use HSAs dollars toward purchasing health plans. Better Care Reconciliation Implementation Fund: A new fund that will provide $500 million to help with administrative costs of implementing the law. Catastrophic Plans: Allows any individual to enroll in a catastrophic plan, and allows catastrophic enrollees to be eligible for tax credits, effective for plans beginning on or after Jan. 1, 2019. Medicaid Provisions Presumptive Eligibility After Jan. 1, 2020, the provisions would no longer allow hospitals that participate in Medicaid to elect to make presumptive-eligibility determinations. On Jan. 1, 2020, the authority of certain specified states (i.e., those that elected to provide a presumptive eligibility period to children or pregnant women) to elect to make presumptive-eligibility determinations for the ACA Medicaid expansion group or the state option for coverage for individuals with income that exceeds 133 percent of the federal poverty level (FPL) would be modified. It would not modify the authority of states to elect to make presumptive-eligibility determinations for the mandatory foster care group under age 26 or for low-income families eligible under the Social Security Act Section 1931 based on a preliminary determination of likely Medicaid eligibility by a specified Medicaid provider. The ACA Medicaid Expansion: The Medicaid provisions in the revised Senate language provide expansion states that elected to cover newly eligible individuals before March 1, 2017 a phased-down matching rate of 94 percent in calendar year (CY) 2018, 93 percent in CY 2019, 90 percent in CY 2020, 85 percent in CY 2021, 80 percent in CY 2022, 75 percent in CY 2023 and then reverts to the regular state match rate in CY 2024 and beyond. It eliminates the state option to extend coverage to adults above 133 percent of the FPL effective Dec. 31, 2017. 3

Essential Health Benefits: The ACA provisions applying to the essential health benefits will not apply after Dec. 31, 2019. Disproportionate Share Hospital (DSH) Allotment Reduction Exempts nonexpansion states from the ACA Medicaid DSH allotment reductions, and in certain circumstances nonexpansion states would receive an increase to their DSH allotments for FY2020. Medicaid DSH allotment reductions for expansion states would be determined as though nonexpansion states were not exempted from reductions. In addition, certain nonexpansion states would receive an increase to their Medicaid DSH allotments for FY2020. Starting the second quarter of CY2024, Medicaid DSH allotments for states receiving the increase would be determined as though the states had not received the increase in FY2020. Nonexpansion states would receive the increase to their Medicaid DSH allotment in FY2020 if their per capita FY2016 Medicaid DSH allotment amount (i.e., FY2016 Medicaid DSH allotment divided by the number of uninsured individuals in the state for such fiscal year) is below the national average per capita FY2016 Medicaid DSH allotment amount. Eligible states would receive an increase to their FY2020 Medicaid DSH allotment that would be the difference between each state s per capita FY2016 Medicaid DSH allotment amount and the national average per capita FY2016 Medicaid DSH allotment amount. For this provision, expansion states would be defined with respect to a fiscal year as a state that provides eligibility under the ACA Medicaid expansion or the state option for coverage for individuals with incomes that exceed 133 percent of FPL on or after Jan. 1, 2021. A nonexpansion state would be defined as a state that is not an expansion state with respect to a fiscal year. However, a state that provides eligibility under the ACA Medicaid expansion or the state option for coverage for individuals with incomes that exceed 133 percent of FPL during the period of Oct. 1, 2017 through Dec. 31, 2020, would be treated as a nonexpansion state for quarters beginning on or after the first day of the first month for which the state no longer provides the coverage. Changing the Effective Medicaid Benefit Eligibility: Limits the date of retroactive coverage of Medicaid benefits to the month in which the applicant applied. The new language would continue to require states to provide for retroactive Medicaid coverage for services provided in or after the third month before the month of application for (1) recipients who are 65 years of age or older, and (2) individuals who are eligible for medical assistance based on being blind or disabled at the time the application is made. This provisions would apply to Medicaid applications made on or after Oct. 1, 2017. Providing Safety Net Funding for Nonexpansion States: Adds a new section to the Social Security Act (SSA) to establish safety-net funding for nonexpansion states. For FY2018 through FY2022, each state (defined as the 50 states and the District of Columbia) that has not implemented the ACA Medicaid expansion (through the state plan or a waiver) as of July 1 of the preceding year may receive safety-net funding to adjust payment amounts for Medicaid providers. For these payment adjustments using the safety-net funding, nonexpansion states would receive an increased matching rate of 100 percent for FY2018 through FY2021 and 95 percent for FY2022. The maximum amount of safety-net funding for all nonexpansion states would be $2.0 billion for each year, for a total of $10 billion from FY2018 through FY2022. Each nonexpansion state s allotment for each year would be determined per the number of individuals in the state with income below 138 percent of FPL in 2015 relative to the total number of individuals with income below 138 percent of FPL for all the nonexpansion states in 2015. 4

The payment adjustments to providers would not exceed the provider s costs incurred to furnish health care services for Medicaid enrollees or the uninsured. The provider s costs would be determined by the Health and Human Services (HHS) secretary, and the costs would be net of other Medicaid payments and payments from uninsured patients. If a nonexpansion state were to implement the ACA Medicaid expansion, the state would no longer be treated as a nonexpansion state for safety-net funding for subsequent years. Medicaid Eligibility Redetermination: Permits states to redetermine Medicaid eligibility every six months and provides an enhance federal match of 5 percent for this purpose beginning Oct. 1, 2017. The new language Increases the federal match for the administrative activities attributable to the option of predetermining Medicaid eligibility every six months by 5 percentage points. The increased federal match would be available from Oct. 1, 2017, through Dec. 31, 2019. State Option to Impose a Work Requirement: Permits states effective Oct. 1, 2017, to require nondisabled, nonelderly, nonpregnant individuals to satisfy a work requirement as a condition for receipt of Medicaid medical assistance. The provision would define work requirements as an individual s participation in work activities for a specified period of time as administered by the state. Participating states would be required to exempt the following groups from participation in the work requirement: (1) pregnant women (for the duration of the pregnancy and through the end of the month in which the 60-day postpartum period ends); (2) individuals under 19 years of age; (3) an individual who is the sole parent or caretaker relative in the family of (a) a child who is under the age of 6 or (b) a child with disabilities; or (4) an individual who is less than 20 years of age, who is married or a head of household and who (a) maintains satisfactory attendance at secondary school or the equivalent or (b) participates in education directly related to employment. Provides an enhanced federal match of 5 percentage points for administrative activities to implement this requirement. Provider Taxes Phases down the Medicaid provider tax threshold from the current level of six percent to 5.8 percent in FY2021. The new language continues to phase-down the provider tax as follows: 5.6 percent in FY2022, 5.4 percent in FY2023, 5.2 percent in FY2024, and 5 percent in FY 2025 and subsequent years. Alters Medicaid Financing Structure: Changes the Medicaid financing structure to a per-capita-cap model starting FY2020. Sets total medical assistance expenditures for a state as the sum of the per enrollee amounts for five groups: Elderly Blind and disabled adults. Children Expansion adults Other adults, That is multiplied by the number of enrollees in each group. (For states opting to adopt the Medicaid expansion after FY 2016, the per enrollee amount for this group would be the same as the other adult group under the per capita cap). Base Year: The base year for per enrollee amounts is determined using state-selected eight consecutive quarters of expenditure data from FY 2014 through the third quarter of FY 2017 for enrollees subject to the per capita caps. Each state s spending during the state s selected base period would be the base to set target spending for each enrollee category in FY2019 and subsequent years for that state. 5

States implementing the expansion after in FY 2015 can use fewer than eight but at least four consecutive quarters of data to determine the base amount for that group. Secretary has discretion to adjust data as deemed appropriate. Base year amounts are inflated to 2019 by medical CPI. The target expenditures in 2020 are calculated based on the 2019 per enrollee amounts for each enrollment group adjusted to maintain the ratio of non-dsh supplemental payments to total payments and multiplied by the number of enrollees in each group. Expenditures exclude: Administrative costs. DSH. Medicare cost-sharing. Safety net provider payment adjustments in nonexpansion states. Certain categories of individuals, including CHIP, those receiving services through Indian Health Services, those eligible for Breast and Cervical Cancer services, partial-benefit enrollees (including partial duals), and children who qualify on the basis of being blind or disabled are excluded. Per Capita Base Period: The per capita base period for each state would be a period of eight consecutive fiscal quarters selected by the state no later than Jan. 1, 2018. Per Capita Cap Base Calculation: The new Senate version increases per enrollee amounts by the medical Consumer Price Index (CPI) for adults and children and medical CPI plus 1 percentage point for the elderly and disabled for 2020 through 2024. For FY 2025 and beyond, increase per enrollee amounts by CPI Urban (CPI-U). Direct the secretary to calculate and apply per capita cap payment provisions for categories that were not satisfactorily submitted as if they were a single 1903A enrollee category and the growth factor otherwise applied shall be decreased by one percentage point. Direct the secretary to adjust target per enrollee amounts by.5 percent to 2 percent for states spending 25 percent or more above and below the mean per capita expenditures to be closer to the mean beginning in 2020. (Adjustments applied in aggregate and not for each enrollee group in 2020 and 2021). Adjustments are to be budget neutral to the federal government and excludes adjustments to certain low-density states (Alaska, Montana, North Dakota, South Dakota and Wyoming). Any adjustment made will be disregarded when determining the target medical assistance expenditures for state and category for the succeeding year. Excess Aggregate Medical Expenditures As in the House version, the Senate bill imposes a penalty beginning in FY2020 for excess aggregate spending for a fiscal year that results in a reduction of the quarterly Medicaid payments by one-quarter of the previous year payments. Excess aggregate medical assistance expenditures for the state and fiscal year would be the amount by which the adjusted total medical assistance expenditures exceeds the amount of the target total medical assistance expenditures. Excess aggregate medical assistance payments would be the product of the excess aggregate medical assistance expenditures and the federal average medical assistance matching percentage. States with medical assistance expenditures exceeding the target amount for a fiscal year will have payments in the following fiscal year reduced by the amount of the excess payments. Excludes certain 6

expenditures associated with public health emergencies during a period of a declared public health emergency. Ensuring Access to Home and Community-Based Services: Establishes a new section of the SSA to require the HHS Secretary to establish a four-year demonstration project under which eligible states may make Home and Community Based Services (HCBS) payment adjustments for continuing to provide and improving the quality of HCBS under a waiver or state plan option. The demonstration project would begin on Jan. 1, 2020, and end Dec. 31, 2023. Under the demonstration, each state would receive an amount allotted for each year with the aggregate amount allotted to eligible states for all years not to exceed $8 billion. Flexible Block Grant Option for States: Provides states the option to participate in the Medicaid Flexibility Program beginning with FY 2020. Under the Medicaid Flexibility Program, states would receive block grant funding instead of per capita cap funding for non-elderly, nondisabled, nonexpansion adults. States would elect this option for a five-year period. Medicaid and CHIP Quality Performance Bonus Payments Establishes a Medicaid and CHIP quality performance bonus payment through FY 2023 through FY 2026. To be eligible a state would have to lower the expected aggregate medical assistance expenditures excluding expenditures for other nonelderly, nondisabled, nonexpansion adults for that fiscal year. Grandfathering Certain Medicaid Waivers; Prioritization of HCBS Waivers: Allows states that are operating grandfathered managed care waivers to elect, through a state plan amendment, to continue in perpetuity to implement the managed care delivery system that is the subject of the waiver, without submitting an application for a new waiver. Coordination with States: The new version of the Senate bill requires the HHS secretary to undertake additional policy consultation with states and additional Medicaid rulemaking procedures, effective for rules that are finalized on or after Jan. 1, 2018. State Option to Provide Certain Inpatient Psychiatric Services: Provides states with options of providing Medicaid coverage of qualified inpatient psychiatric hospital services to individuals over the age of 21 and under the age of 65. Establishes a special matching rate of 50 percent for providing coverage of qualified inpatient psychiatric hospital services to Medicaid enrollees over the age of 21 and under the age of 65. Enhanced FMAP for Medical Assistance to Eligible Native Americans: Provides for a 100 percent FMAP for amounts expended as medical assistance for service provided by any provider under a Medicaid state plan to an individual who is a member of a Native American Tribe and eligible under a Medicaid state plan. Waivers for State Innovation: Modifies the specified provisions that can be waived under a 1332 waiver. It amends the criteria related to coverage, affordability, comprehensiveness, and federal-deficit neutrality a state s plan would have to meet for the secretary to approve a 1332 waiver. Instead, the draft bill would require the secretary to grant a state s waiver request unless the secretary determines that the state s plan, to be implemented in place of the waived provisions, would increase the federal deficit. The new Senate language would not modify the specified provisions that can be waived under a 1332 waiver, however, the draft bill would alter three of the provisions that can be waived under a 1332 waiver: the individual mandate, the employer mandate, and the cost-sharing subsidies. It amends the 7

criteria related to coverage, affordability, comprehensiveness, and federal-deficit neutrality a state s plan would have to meet for the secretary to approve a 1332 waiver. 8