ANALYSIS: How The Reconciliation Package Improved The Senate Bill

The full text of the reconciliation bill is up and all in all, it doesn’t contain too many surprises. Like the President’s proposal, the package improves the affordability measures in the Senate bill, increases the excise tax thresholds and completely closes the donut hole in Medicare Part D. Lawmakers had a hard time making this package work: they had to achieve significant deficit reductions all the while spending more money on affordability credits and losing revenue in the excise tax provisions. The bill does this in several ways:

1. The revenue loss from the excise tax is made up largely by extending the payroll tax on unearned income and some other adjustments in the bill on minor revenue offsets. On the spending side, the bill contains stronger savings and efficiencies in Medicare Advantage.

2. The two provisions driving the savings in the second decade, estimated by the CBO to be at some $1.2 trillion, are the slower growth of premium tax credits in 2018 and the more aggressive indexing of the thresholds on excise tax on high-cost plans (that’s been changed from inflation +1 to inflation)

The proposal also eliminates the so-called Cornhusker kickback and provides full federal funding for Medicaid expansion until 2016. The government will pay for 95% of the expansion in 2017, 94% in 2018, and 93% in 2019. Beginning in 2020, the federal government will fund 90% of the expansion. Significantly, the reconciliation bill will also allow an enhanced match to the 11 states that already cover childless adults below 133% of the federal poverty level (the 11 states will begin receiving higher federal matching funds for this population until all states receive 93% federal matching rate by 2019). In 2013 and 2014, the reconciliation package sets Medicaid payment rates for primary care physicians equal to 100% of Medicare payment rates, including payments for office visits and immunizations.

The proposal contains several Republican proposals for how to eliminate fraud and waste in the Medicare program, but does not include Sen. Tom Coburn’s (R-OK) infamous undercover-patient proposal (the CBO could not score it). The proposal also excludes the President’s proposed rate review authority, a provision championed by Sen. Dianne Feinstein (D-CA) as a way to prevent insurers from dramatically increasing premiums in the period before the exchanges become operational. That provision, along with changes to the immigration or abortion language would have run “afoul of reconciliation rules.” The remaining rate review language in the Senate bill would still allow the Secretary of Health and Human Services, in consultation with the states, to develop a plan to look for “unreasonable increases.” The State Exchange would then decide whether particular health insurance issuers should be excluded from participation in the Exchange for charging unreasonable rates.

Significantly, the reconciliation bill also met the concerns of Sen. Jay Rockefeller (D-WV) and expanded the prohibition on pre-existing condition exclusion, the lifetime and annual limits, dependent coverage through 26 to the employer market beginning in 2014.

Below is a comparison of how the reconciliation package compares to previous legislation:

Provision	Reconciliation	Senate Bill	House Bill
Topline Info	Total cost: $940B/10yrs Deficit reduction: $130B/10 – $1.2T next 10 Uninsured reduced: 32M	Total cost: $875B/10yrs Deficit reduction: $118B/10yrs Uninsured reduced: 31M	Total cost: $1.2T/10yrs Deficit reduction: $109B/10yrs Uninsured reduced: 36M
Affordability	Improves the Senate bill’s subsidies for lower income Americans. Makes the tax credits for health insurance premiums more generous for individuals and families with incomes between 250% and 400% of the federal poverty level (FPL). Reduces cost-sharing for individuals and families with incomes between 100% and 250% FPL as compared to Senate bill. Constrains growth in credits if premiums are growing faster than CPI.	Families and individuals making under 250% FPL would pay higher premiums than what’s offered in the new proposal and the percent of costs paid for by health insurers is lower in the this bill (as compared to the new reconciliation package) (Spent on subsidies: $436B/10yrs)	Families and individuals earning below 250% FPL would still receive more subsidies under the House bill, but Americans earning more than 250% would pay higher premiums (as compared to the Senate bill.)
Excise Tax	Reduces revenue collected by 80%. Delays implementation of the tax on high-cost insurance plans until 2018 and raises the amount of health insurance premiums that are exempt from the tax. Individuals: threshold increases from $8,500 to $10,200. Families: threshold increases from $23,000 to $27,500. Higher thresholds for high risk employees and retirees. Also, thresholds automatically increased if CBO is wrong bout premium inflation rate between now an 2018. Indexes these amounts for subsequent years at general inflation.	40% excise tax beginning in 2013 on individual polices worth $8,500 or higher and family policies starting at $23,000. Indexes these amounts for subsequent years at general inflation plus 1%.	No excise tax.
Payroll Tax	Tax on unearned income. Increases the Hospital Insurance (HI) payroll tax for individuals with incomes over $200,000 and families with incomes over $250,000; adds a new tax of 3.8% of income from interest, dividends, annuities, royalties or rents. Begins on January 1, 2013.	Payroll tax increase of 0.9% on earnings above a specific threshold for a total employee assessment of 2.35% on these amounts.	5.4% surcharge on high-income households.
Individual Mandate	Reduces and phases in the penalty. Penalty for an individual is the greater of a flat fee of $695 by 2016 or 2.5% of income by 2016. Penalty for a family is the greater of 3 times the individual flat fee penalty $2,085 or 2.5% of household income.	Penalty for an individual is the greater of a flat fee of $750 or 2.0% of income. Penalty for a family is the greater of 3 times the individual flat fee penalty $2,250 or 2.5% of household income.	2.5% of income by 2016 with a limit of the average national health premium.
Employer Mandate	Increases penalties for large employers (50+ workers). Large employers have to pay a fee of $2,000 per FTE if they do not offer coverage and have at least one FTE that receives a premium tax credit or cost-sharing subsidy. Large employers that offer coverage and have at least one FTE that receives a premium tax credit will pay penalties of $3,000 per employee receiving a premium credit. Disregards first 30 workers employed by the employer in calculating the amount of the penalty.	Large employers have to pay a fee of $750 per FTE if they do not offer coverage and have at least one FTE that receives a premium tax credit or cost-sharing subsidy. Employers would have to pay whichever is lower: $3,000 per every employee who receives a subsidy in the Exchange, or $750 for every employee (not just the subsidized worker).	Employer mandate. The House bill requires a payroll tax for employers that do not offer health insurance that meets minimum standards.
Medicare Donut Hole	Completely closes donut hole. Replaces $500 increase threshold increase limit with a $250 rebate to Medicare beneficiaries who hit the donut hole in 2010. Closes donut hole by phasing down the coinsurance so it is the standard 25% by 2020 throughout the coverage gap.	The Senate bill provides a 50% discount for certain drugs in the donut hole. Raise the dollar amount before the donut hole begins by $500 in 2010.	The House bill fully phases out the donut hole over 10 years. Raise the dollar amount before the donut hole begins by $500 in 2010.

Finally, it’s also worth highlighting the start dates for the immediate benefits of the bill. Prohibition on pre-existing conditions for children, prohibition on lifetime limits, rescissions, limits on waiting periods that are longer than 90 days and the requirement that all health plans have to cover non dependent children up to age 26 all begin 6 months after enactment.