Senate health bill kills device tax, but tough sledding ahead

June 23, 2017 – 11:29 AM | By Andrea Gonzalez | No comments yet

By Mark McCarty, Regulatory Editor

The Senate health care reform bill debuted to a waiting and somewhat hostile Washington, and as expected, the legislation retains the repeal of the tax on medical devices and diagnostics found in the House bill. The language in the Senate bill is seen as little more than a draft of what will eventually go to the Senate floor for a vote, however, a vote that most likely will be held under budget reconciliation rules.

The Republican Party has something of a tailwind in the form of several wins in special congressional elections over the past week, while President Trump has lowered his profile somewhat on Twitter. Still, Senate majority leader Mitch McConnell (R-Ky.) has indicated that he would like to see a finished bill on the Senate floor for a vote by July 4, leaving drafters of the legislation little time to make the changes needed to ensure the legislation can get to 50 votes. Some observers believe that a more realistic timeline for a vote on the bill is later in the month of July, with the August recess serving as a hard deadline for the vote.

The Republican Party has 52 seats in the Senate, and Senate budget reconciliation rules allows passage with only 51 votes. Should the Senate health care reform bill fail to garner more than 50 votes, Vice President Mike Pence would presumably cast the deciding vote.

The repeal of the medical device tax is hardly controversial – a sense-of-the-Senate vote affirmed the notion by a margin of 79-20 in March 2013 – and this legislation would put an end to the tax at the end of this calendar year, when the current two-year suspension of the tax terminates. Similarly, the excise tax on prescription drugs that was found in the ACA would no longer be in force in January 2018. Broadly speaking, the Senate bill eliminates all the taxes imposed by the ACA with the exception of the so-called Cadillac tax on high-end health care plans offered by employers.

The Senate bill takes a $2 billion, one-year swipe at the opioid abuse problem, which would fund grants to the states via the Department of Health and Human Services in 2018. The monies could be used to fund treatment and recovery support services, and those with both mental health and substance abuse disorders would be eligible.

One feature of the Senate bill that could prove problematic for some conservatives is that it reduces the eligibility for health insurance exchange subsidies to 350 percent of the federal poverty level, a relatively small change from the 400 percent set point in the Affordable Care Act. On the other hand, those living below the poverty level in states that did not sign on for Medicaid expansion under the ACA would be eligible for subsidies, which ensures some GOP votes.

Generally speaking, federal spending on Medicaid would be pegged to the overall Consumer Price Index rather than the typically more generous medical price index under the Senate’s first draft. One of the more interesting aspects of the Senate bill is that it does not seem to excise the Independent Payment Advisory Board, a feature of the Affordable Care Act that drew bipartisan fire even before passage.

The Senate bill retains a few features of the Affordable Care Act that would help keep some Republicans on board, including the provision that allows young adults to stay on their parents’ health plans to the age of 26. On the other hand, the Senate bill makes funds available to stabilize the health insurance exchanges set up by the Affordable Care Act via $15 billion annually in 2018 and 2019, a sum that would drop by a third in the two following years. The roll-back of federal Medicaid funding to pre-ACA levels is a feature that will undoubtedly prove insuperable for any Senate Democrats who might otherwise have been willing to cross party lines to vote for the measure.

As might be expected, not all Senate Republicans are on board with the first draft of the legislation. Sen. Rand Paul (Ky.) has proposed legislation that would stipulate that a bill not be eligible for a vote on the Senate floor until one day has passed for each 20 pages taken up by that legislation. Paul said he would not vote for the Senate health reform bill in its current form, stating that while “the current bill does not repeal Obamacare . . . I remain open to negotiations.” Other members of the Senate GOP who have openly voiced concerns include Sens. Ted Cruz of Texas and Mike Lee of Utah.

Senate minority leader Chuck Schumer (D-N.Y) said the Senate bill “is a wolf in sheep’s clothing, only this wolf has sharper teeth than the House bill.” Seema Verma, administrator of the Centers for Medicare & Medicaid Services, said in a June 22 statement that the ACA “is in a death spiral,” and that Congress “must act now to achieve the President’s goal to make sure all Americans have access to quality, affordable coverage.”

Diana Lee, a senior credit officer at Moody’s, said that medical device companies would benefit from the permanent repeal of the device excise tax. However, “the elimination of insurance mandates and the ability for states to opt-out of providing certain essential services could result in pricing pressure and a modest reduction in demand for hospital care.” Beyond 2020, she noted that changes to federal funding of Medicaid “would be even tougher for device makers, as they share the pain suffered by their hospital customers. If states reduce the number of Medicaid recipients, services or reimbursement, it would result in an even greater softening in demand and higher bad debt rates for hospitals.”


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