Obamacare remains in place as repeal and replace fails

The Patient Protection and Affordable Care Act (also known as Obamacare) remains in place as the law of the land after the Senate rejected a limited Obamacare repeal bill by a vote of 49-51.

The failure to repeal and replace Obamacare is a major defeat for President Trump, who made it the centerpiece of his campaign, and for Republicans, who have spent the last seven years attempting to repeal it. In the aftermath, Senate Majority Leader Mitch McConnell (R-KY) indicated that “it’s time to move on,” and put the health care bill on hold, announcing that the Senate would move on to other legislation. The House promptly adjourned for its August recess and will not be back in session until after Labor Day.

This most recent setback is even more stunning, considering that the House and Senate passed legislation to repeal Obamacare in 2015—only to see it vetoed by then-President Obama. After President Trump’s victory in the November election gave Republicans control of the White House and both houses of Congress, it appeared that nothing stood in the way of repealing Obamacare, but the process was complicated from the start because of the slim Republican majorities in both the House and Senate.

In the House, Speaker Paul Ryan (R-WI) pulled the American Health Care Act (AHCA) from the House floor in March when House leadership realized that they lacked enough votes to pass the bill. Even with a House majority, Republicans could have lost the votes of only 22 members and still moved the bill forward. A series of changes were made to the AHCA to garner the support of conservative and moderate members, and the House passed its repeal and replace legislation in May—by a narrow 217-213 vote—with 20 Republicans voting against the bill.

The Senate chose not to take up the House bill, and instead worked on its own repeal and replace legislation, the Better Care Reconciliation Act (BCRA). With a 52-48 majority, Republicans could have lost the votes of only two members and still advanced the bill. Majority Leader McConnell delayed a vote on the bill until after the July 4 recess to make changes to the bill addressing the concerns of conservative and moderate members, ultimately abandoning a vote after key Senators announced that they were not prepared to support it.

The Senate then voted 51-50 to begin debate on repealing Obamacare. The measure passed only after Senator John McCain (R-AZ) returned to the Senate floor for the vote, and Vice President Mike Pence cast the tie-breaking vote. Debate began immediately after the vote, only to see votes on two of the three legislative options for replacement subsequently fail. The Senate then took up a third option, a limited Obamacare repeal bill that would have only repealed the Obamacare insurance mandates and the medical device tax, but it failed by a vote of 49-51, with Senator McCain joining Senators Susan Collins (R-ME) and Lisa Murkowski (R-AK) and all 48 Democrats to defeat the bill.

The failure to repeal and replace Obamacare also means that HSA expansion is now less likely to occur. Both the House and Senate repeal and replace bills included the following provisions to expand HSA use.

• Increase the annual HSA contribution limits. As proposed, the maximum contribution would have been increased to the out-of-pocket expense limit under qualified high deductible health plans. [For 2017, $6,550 for self-only coverage and $13,100 for family coverage, indexed for inflation.]  
• Permit spouses who are eligible to make catch-up contributions (both are age 55 or older) to choose which spouse’s HSA the additional amounts will be contributed to. [This provision would allow both spouses to make their catch-up contributions to the same HSA, which is not permitted under current law.]
• Expand the definition of “qualified medical expense” to include over-the-counter (non-prescription) medications.
• Allow eligible medical expenses incurred up to 60 days before the HSA was established to be paid tax-free from the HSA.
• Reduce the additional tax on HSA distributions used for non-qualified medical expenses from the current 20 percent to 10 percent.

The Senate’s revised BCRA bill also added a provision that would allow HSA distributions for the purchase of qualifying health insurance in the individual insurance market. The provision would not extend to employer-provided qualifying health insurance, which, according to the Employee Benefits Research Institute, covers more than 60 percent of the U.S. population.

Under current law, for most individuals, HSA distributions are allowed only for payment of certain long-term care and continuation-of-benefit (COBRA) premiums, and health insurance premiums while receiving unemployment benefits. For individuals over age 65, HSA distributions are allowed only for payment of Medicare Part A, Part B, and Medicare HMO premiums, as well as for the employee portion of employer-provided qualifying health insurance premiums.

The HSA provisions, if enacted, would have been the first expansion of HSAs since passage of the Tax Relief and Health Care Act of 2006, which increased the annual contribution limits and provided limited Traditional IRA-, health flexible spending arrangement (FSA)-, and health reimbursement arrangement (HRA)-to-HSA rollovers. The HSA provisions would have greatly benefited credit unions offering HSAs to their members.

Although efforts to repeal and replace Obamacare failed, double-digit HSA growth is likely to continue. The market forces that have driven double-digit growth over the past 10 plus years—increasing health care costs and employer migration to high deductible health plans—remain and are likely to continue driving HSA growth for the foreseeable future.

As we go to press, repeal and replace is dead, but it was dead once before and came back to life. In the days since the Senate vote, President Trump has taken to Twitter to urge Republicans not to give up the effort on health care. And, as he hits the 200-day mark of his presidency—without a single major legislative victory—it would seem unlikely that he will give up on one of his signature campaign promises, one which galvanizes his most ardent supporters. Stay tuned.