What healthcare stakeholders should know about the new COVID-19 relief legislation

• The massive new COVID-19 relief legislation may result in a $36 billion per year reduction in Medicare spending starting in FY22.
• Various provisions are designed to increase the affordability of the healthcare coverage that’s available through the Affordable Care Act.
• One provision closes a loophole regarding Medicaid DSH payments.

The $1.9 trillion American Rescue Plan, which is expected to be signed into law this week, includes elements that figure to benefit providers. However, it also could lead to a significant reduction in Medicare payments if Congress does not take further action.

As explained in a brief issued by the Congressional Budget Office (CBO), the federal Office of Management and Budget (OMB) has a statutory obligation to offset any deficit increase that’s projected to result from the legislation.

Based on CBO’s projections, the resulting deficit would amount to $381 billion per year over five years. If OMB’s estimates align with that figure, that amount must be offset by spending reductions during a five-year period starting in FY22. Some of the cuts would come out of Medicare spending, with the reduction capped at 4 percentage points, or an estimated $36 billion per year.

That decrease would be in addition to the ongoing 2% sequestration, which was paused during the early part of the COVID-19 pandemic but is scheduled to resume in April.

According to CBO, the reduction is required to be implemented unless Congress passes further legislation to offset the deficit or votes to “waive the recordation of the bill’s effects on the [deficit] scorecard.”

March 19 update

The House of Representatives on Friday passed a bill that would both cancel the “pay-as-you-go” spending reductions attached to the new legislation and delay restoration of the 2% sequester through 2021. The bill now goes to the Senate, where it will need support from at least 10 Republicans to pass. In the House, 29 Republicans joined Democrats in voting for the bill.

The bill also includes a technical fix to the relief legislation to prevent “unintended reductions for hospitals that receive Medicaid Disproportionate Share Hospital payments,” according to a news release from bill sponsor John Yarmuth (D-Ken.).

A separate bill introduced in the Senate would address the 2% sequester, extending the freeze until the end of the ongoing public health emergency. That bill has bipartisan sponsorship from Sens. Susan Collins (R-Maine) and Jeanne Shaheen (D-N.H.).

Here are some of the other provisions in sweeping new legislation that apply to healthcare stakeholders.

Money for rural hospitals, but not for other providers

The legislation allocates $8.5 billion for rural healthcare providers to cover healthcare-related expenses and lost revenue attributable to COVID-19. To be eligible, an organization must be located in a rural area as designated by criteria established in the Social Security Act or must provide in-person care to patients who live in rural areas.

As with other distributions from the Provider Relief Fund (PRF), recipients will need to apply for funding and attest to their pandemic-related expenses and lost revenues.

A late change to the legislation removed the requirement that parent organizations of rural providers apportion the funds directly to hospitals that have incurred high pandemic-related costs.

The legislation does not include money for nonrural hospitals. The absence of such funding was a letdown for hospital advocates.

More subsidies for people seeking health insurance through the Affordable Care Act

One of President Joe Biden’s campaign pledges was to fill in some of the gaps in the Affordable Care Act (ACA). The new legislation strives to do that by increasing the availability of subsidies to help cover the cost of the coverage that’s available in ACA marketplaces.

A key provision is the availability of subsidies for households with incomes that exceed 400% of the federal poverty level. Currently, those households are ineligible for subsidies, but the new legislation caps their premium costs at 8.5% of income. Premiums also are intended to decrease for some households with lower incomes.

Those provisions are temporary, lasting only through 2022.  

The Congressional Budget Office has estimated that when the provisions take effect, 1.7 million additional people would gain coverage through the marketplaces — including 1.3 million who previously were uninsured, 300,000 who had individual insurance outside the ACA marketplaces and 100,000 who had employment-based coverage.

Regarding out-of-pocket costs such as deductibles and copayments, the legislation makes it easier for marketplace enrollees to be eligible for subsidies in 2021 based on having received unemployment benefits during the past year.

In addition, through Sept. 30, individuals who become unemployed can retain COBRA coverage without paying premiums.

Adjustments to the Medicare area wage index

For states without a designated rural area (i.e., “all-urban states”), the legislation includes changes to the wage index that likely will boost Medicare payments to some hospitals.

Beginning Oct. 1, payments for discharges in an “all-urban state” will be subject to a new wage-index floor equal to the minimum wage index for hospitals in that state during a given fiscal year. (Per CMS, a labor market area’s wage index value is the ratio of the area’s average hourly wage to the national average hourly wage.)

Financial support for Medicaid programs and beneficiaries

The dozen states that have not expanded Medicaid eligibility would have new incentives to do so, with the Federal Medical Assistance Percentage (FMAP) rising by 5 points — to cover 95% of program expenditures — for the first three years of an expansion.

A late change to the legislation is intended to ensure that Medicaid Disproportionate Share Hospital (DSH) payments aren’t affected by the FMAP increase that was implemented for all Medicaid programs during the early phases of the pandemic.

According to the American Hospital Association (AHA), CMS will be required to “recalculate the annual DSH allotments for any year the temporary COVID-19-related FMAP increase applies to ensure that the total DSH payments a state would make (including federal and state shares) is equal to the DSH payment amount the state would have made in the absence of the temporary FMAP increase.”

The AHA further clarifies that the DSH-related recalculation is retroactive to coincide with the COVID-19-related temporary FMAP increase and will end at the beginning of the fiscal year that follows termination of the public health emergency (PHE) declaration.

The legislation also jettisons the Medicaid drug rebate cap, which currently is set at 100% of the average manufacturer price, starting Jan. 1, 2024. In addition, outpatient drugs used for COVID-19 treatment or prevention will be eligible for inclusion in the Medicaid Drug Rebate Program.

Finally, states will have the option to extend Medicaid and Children’s Health Insurance Program eligibility for pregnant women over a 12-month period postpartum.

Other items of note

The legislation also includes increased funding for COVID-19 vaccination efforts and for the U.S. public health workforce, among other aspects of interest to healthcare stakeholders. The AHA has a summary of the various healthcare-related provisions.

In addition to expressing disappointment about the absence of PRF general funding, the AHA noted its concern with the lack of a solution regarding the 2% Medicare payment sequester. The AHA also had hoped the legislation would offer loan forgiveness for Medicare advance payments, but no such language was included.