The biggest surprise in the healthcare bill released by Senate Republicans may be just how similar it is to what the House passed last month.

To be sure, there are several important differences between the Senate bill—called the Better Care Reconciliation Act—and the House-passed American Health Care Act (AHCA):

1. The Senate bill would likely cut federal Medicaid funding more over time.

Both the Senate and House bills would reduce federal Medicaid funding in two key ways.

First, they would phase out enhanced federal funding for the Affordable Care Act's Medicaid expansion. Second, the federal government would no longer pay states for a set share of all costs incurred by Medicaid beneficiaries. Instead, the federal government would set a cap on per-beneficiary payments to states, and that cap would grow more slowly over time than the average state's currently projected Medicaid cost increases. (States under both bills also would have the option to cover certain enrollees through a block grant.)

But there are significant differences in how the House and Senate would implement these changes. The Senate bill would take longer to wind down enhanced Medicaid expansion funding, and it would let states select their initial cap benchmark—likely a higher one than under the House bill. It would also, through 2022, allocate additional funding to non-expansion states and allow those states to pay providers enhanced Medicaid reimbursement rates to care for their safety net population. Relative to the House bill, this approach would initially make the Senate version less financially painful for hospitals, but only in the short term.

In the longer term, the Senate bill would increase the per-beneficiary cap at an even slower rate than the House bill. Specifically, starting in 2025, the Senate measure would increase the cap growth rate based on a broad-based inflation index, CPI-U, which is projected to grow around 2.5 percent annually. The House bill, by contrast, would indefinitely tie the cap's growth rate for traditional adult and child beneficiaries to the Consumer Price Index for Medical Care, CPI-M, which is projected to grow by about 3.9 percent annually. For adults with disabilities and the elderly, the House bill would increase the cap by CPI-M plus 1 percentage point.

As the Senate plan's more aggressive cap growth rate takes effect, states would be more likely to significantly modify some combination of Medicaid eligibility, benefits and payment rates, all of which would negatively impact provider margins. States might also respond to funding cuts by using federal waivers to experiment with consumer-driven insurance design or to implement delivery system reforms in Medicaid.

As a reminder, the Congressional Budget Office (CBO) projected the House-passed AHCA would cut federal Medicaid funds by $834 billion and reduce Medicaid enrollment by 14 million people by 2026. CBO is expected to release its analysis of the Senate bill early next week.

2. The Senate bill would set healthcare tax credits based on income, age and geography.

The Senate bill's insurance tax credits would mirror the ACA's in that they would vary by income, age and geography, although they would only be available to individuals with incomes of as much as 350 percent of the federal poverty level, compared to 400 percent under the ACA. Insurers could also charge older individuals more under the Senate bill than under the ACA.

Meanwhile, the House bill's tax credits would primarily be based on age. Both the House and Senate bills would scrap the ACA's cost-sharing subsidies starting in 2020, although the Senate bill would explicitly fund them through 2019.

3. The Senate bill includes different waivers that states can use to adjust the individual market.

The House-passed AHCA would allow states to waive ACA requirements that insurers cover 10 categories of essential health benefits (EHBs). It also would let states waive a provision requiring insurers to offer the same premium to all customers, regardless of any pre-existing conditions, for those who do not maintain continuous coverage.

The Senate bill, however, wouldn't create new waivers. Instead, it would change waivers that are already available under the ACA to make them far easier to obtain and more wide-ranging. These would allow states to waive requirements on EHBs, actuarial values and the definition of qualified health plans, but they wouldn't allow insurers to charge sick people more for coverage than healthy individuals.

4. The Senate bill includes no penalty for lack of coverage.

Both the House and Senate bills would repeal the Affordable Care Act's individual and employer mandates. However, the House bill would replace it with a different kind of penalty to encourage individuals to remain insured—it would levy a 30 percent premium surcharge on individuals who let their coverage lapse and then purchase a new health plan. The Senate bill contains no such penalty.

Absent such a penalty provision, it's highly likely that some healthy people would choose not to purchase health insurance, because they could always wait to purchase coverage after they get sick. As a result, the population insured on the individual exchanges under the Senate bill would be sicker than the population at large, forcing insurers to raise premiums—a phenomenon known as adverse selection.

What isn't different—and what the bill could mean for hospitals

It's important to note that the Senate bill is likely to change—both as Republican leaders attempt to wrangle the 50 GOP votes needed for passage, and as the Senate parliamentarian rules on what can and cannot be included in the bill under the rules governing the budget reconciliation process.

But right now, under both the House and Senate bills, the federal government would spend far less money on healthcare; far more people would be uninsured; and individual market plans on average would have far lower actuarial values. Overall, this would lead to significantly increased consumer financial exposure, almost certainly accelerating the already growing trend of activated consumers shopping for care on the basis of price and quality.

In addition, it's worth re-emphasizing how fundamentally both the House and Senate bills would alter Medicaid, which currently covers one in four Americans. Historically, as Medicaid's costs have gone up (such as from public health crises, costly new medicines or rate hikes), federal funds have automatically increased to match state spending. That would change under the GOP plans.

These changes would require hospitals and health systems to:

  • Be much more proactive in developing their safety net strategies. Providers would need to double down on population health and care management efforts and invest in navigation resources to help the underinsured and uninsured navigate an increasingly complex insurance landscape.
  • Redouble efforts to bring their cost structures into line. Hospital leaders need to craft a thorough cost-reduction strategy that includes both near-term savings and higher-upside, longer-term fixed cost restructuring. And to achieve comprehensive margin improvement, they should balance these cost-control efforts with focus on improving revenue cycle performance and capturing new growth.
  • Develop a consumer strategy that delivers on what patients value. That means improving access and experience, offering more affordable pricing and intuitive transparency tools, and driving patient loyalty over time.

Providers should also continue to develop their risk strategies. Neither GOP plan would alter the CMS Innovation Center—another sign, along with the contents of Wednesday's MACRA proposed rule—that payment and delivery system reforms are moving ahead.

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