Obamacare Repeal Strikes Out in Senate. What's Next?

(Parker Tax Publishing August 2017)

After narrowly clearing procedural hurdles to move healthcare legislation to the Senate floor, debate on various alternatives culminated in the defeat of three separate Obamacare repeal bills. Former presidential candidate John McCain (R-AZ) joined Susan Collins (R-ME), Lisa Murkowski (R-AK), and 48 Democrats in voting against the final bill, likely ending Congressional Republicans' efforts to repeal the Affordable Care Act (ACA) for the year.

The proposals the Senate debated represented three distinct approaches to ACA repeal:

(1) The Better Care Reconciliation Act (BCRA), a comprehensive repeal-and-replace bill;

(2) The Obamacare Repeal and Reconciliation Act (ORRA), which would have repealed (without replacing) most of the ACA; and

(3) The Health Care Freedom Act ("Skinny Repeal"), a bare bones repeal of a few of the ACA's core provisions.

After allotting 20 hours for debate, the Senate proceeded to consider each proposal on three successive days.

Three Defeats for Obamacare Repeal

First up was the BCRA, the repeal-and-replace plan Senate Republicans had been developing for months. The final version of the bill included numerous changes from the bill introduced in June, including retention of the net investment income tax (NIIT). The final bill also included the Cruz amendment, which would allow insurance companies to sell stripped down health plans side-by-side with full-coverage plans complying with Obamacare's essential benefit regulations. When the measure came to a procedural vote to determine if it could move forward, nine Republicans joined 48 Democrats to reject the bill 43 to 57.

Next, the Senate considered ORRA, the latest iteration of the so-called "clean repeal" legislation passed by the Senate in December 2015. The bill would have eliminated all of the ACA's taxes and credits, including the individual and employer mandates, the NIIT, and the premium tax credit. According to the Congressional Budget Office (CBO), 32 million fewer people would have health insurance in 2026 under ORRA, compared with current law. Six Republican who voted for a virtually identical bill in 2015 flipped positions to vote against it, helping to send it to a 45-55 defeat.

Capping a week of healthcare drama, Senate leadership introduced their much-anticipated "skinny repeal" bill just hours before a scheduled midnight vote. The bill included four tax provisions: (1) permanent repeal of the individual mandate; (2) repeal of the employer mandate for eight years; (3) repeal of the medical device tax for three years; and (4) an increase in health saving account contribution limits for three years. The bill also would have defunded Planned Parenthood and made it easier for states to obtain waivers for some of the ACA's insurance regulations. CBO scoring indicated that 16 million people would lose health insurance within ten years under skinny repeal.

Senate leadership pitched the bill as a vehicle to get to conference with the House, where they said a comprehensive repeal-and-replace plan could be negotiated - and they almost succeeded. Despite concerns that the bare bones legislation that "was never meant to become law" might simply pass the House and be signed by an eager President, the measure fell just one vote shy of the number needed for Vice President Pence to cast a tiebreaker. Instead, McCain, Collins, and Murkowski voted with the Senate's Democrats to defeat the bill, 49 to 51.

What's Next for Healthcare

In the wake of the defeats, President Trump has made clear that he wants Congress to press forward with repeal and has berated Senate Republicans for their apparent willingness to accept defeat. Several conservatives in the House, including Freedom Caucus Chairman Mark Meadows (R-North Carolina), have also voiced support for resuming the campaign.

But all indications are that the Senate is done with ACA repeal for the year. In a floor speech after the failed vote on skinny repeal, Majority Leader Mitch McConnell (R-KY) said "it is time to move on." More bluntly, Orrin Hatch (R-UT) echoed the sentiments of many Senate Republicans when he said "We're not going back to health care ... I'm sick of it."

While ACA repeal may be dead for the year, Congress may still have to deal with the question of funding cost-sharing reduction (CSR) payments, which are made to insurance companies to compensate them for offering lower out-of-pocket costs to low income enrollees. Funding the payments (and thereby taking away the President's discretion to discontinue them) would almost certainly require bipartisan support, and could be part of a broader package of ACA tweaks.

It also remains possible that NIIT repeal could be rolled into tax reform, as was proposed in the White House's tax outline released in April (Trump Tax Outline).

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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