On June 22, Senate Republicans revealed their version of a proposed legislation to repeal and replace the Affordable Care Act (ACA). The “Better Care Reconciliation Act of 2017” is modeled after the American Health Care Act that narrowly passed the House in May. But there are subtle differences.

Insurance Coverage

Like the House bill, the Senate’s discussion draft would repeal penalties associated with 1) the individual mandate to have health insurance, and 2) the employer mandate that they provide employees with health insurance. These changes would be retroactive to 2016.

Even without the mandate, many employers will still provide affordable health insurance coverage for their employees. And many individuals who don’t receive health insurance through a work or government program will still purchase coverage if the mandate is repealed.

Both versions of the legislation would provide tax credits to make health insurance coverage more affordable. The Senate’s draft links health insurance credits for low-income people to recipients’ age, geographic location and income. The House version ties them solely to age.

Under the Better Care Reconciliation Act, fewer Americans would receive federal assistance for health insurance coverage than under current law. The Senate’s draft bill caps the credits at 350% of the federal poverty level, starting in 2020. Under the ACA, subsidies are capped at 400% of this threshold.

Compared to the House version, the Senate’s draft calls for a more gradual phase-out of Medicaid expansion. It would phase out the ACA-based expansion program over three years, from 2021 to 2024, and then enact deeper cuts beginning in 2025. The Senate also eliminated language contained in the House bill that would prohibit federally subsidized health plans from covering abortions.

Financial Matters

Both versions of health care reform also would repeal many ACA-related taxes, including:

• The 3.8% net investment income tax (effective, retroactively, to the start of 2017 under the Senate version),
• The 10% tax on indoor tanning services (effective for services performed after September 30, 2017, under the Senate version),
• Medical device excise taxes (effective starting in 2018 under the Senate version), and
• The 0.9% Medicaid surtax (effective starting in 2023 under the Senate version).

The controversial Cadillac tax, a 40% excise tax on high cost employer-provided plans, would be pushed back until 2026 under the Senate’s version. In addition, for taxpayers who itemize deductions, both versions of health care reform would return the threshold for deducting medical expenses from 10% to 7.5% of adjusted gross income (AGI). Under the Senate’s version, the change would go into effect for all taxpayers in 2017.

The Senate’s draft calls for increased annual contribution limits for HSAs and repeals the $2,500 limit on annual contributions to a health FSA by an individual or employer. These changes would go into effect in 2018.

What’s Next?

The Congressional Budget Office has estimated that the current draft would reduce the federal deficit by $321 billion over the next 10 years and cause 15 million more people to be uninsured in 2018 than under existing law. By 2026, the increase in the number of uninsured people is expected to rise to 22 million.

Several Republican senators have already expressed concerns about the draft, but all have expressed a willingness to negotiate. On June 26, Republican leadership added the “continuous coverage” provision to the bill, which would lock out people from purchasing health insurance if they’ve gone without coverage for at least six months.

It’s uncertain whether the bill will receive enough votes to win approval in the Senate. However, Senate GOP leadership has postponed a vote on its healthcare bill until after the July 4th recess. They plan to revise the discussion draft during that time and then seek a new CBO score.

We’re monitoring this proposal, and we’ll keep you informed as more details unfold.