ACA Brief: Path to Repeal—The American Health Care Act Unveiled

by Eversheds Sutherland (US) LLP
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Eversheds Sutherland (US) LLP

This ACA Brief is the fourth in a series of installments that will closely track congressional and administrative actions relating to ACA provisions that affect large employer-sponsored plans.

On March 6, 2017, the U.S. House of Representatives Ways and Means Committee and the Energy and Commerce Committee jointly introduced the Republicans’ long-awaited budget reconciliation bill that will be used to repeal and replace certain provisions of the Patient Protection and Affordable Care Act (ACA). Collectively titled the American Health Care Act (AHCA), the legislation reflects each respective committee’s response to the instructions to roll back key provisions of the ACA as contained in the Concurrent Resolution on the Budget for Fiscal Year 2017, as passed in mid-January (for more information, see our January 17 ACA Brief). On March 13, the Congressional Budget Office (CBO) issued its cost estimate of the legislation. As detailed in our January 31 ACA Brief, the reconciliation legislation was expected to contain several provisions that would affect large employer-sponsored health plans. This ACA Brief follows our January 31 predictions and examines other key provisions in the AHCA that will be of interest to health plan sponsors.

What other provisions could impact large employer-sponsored plans?

In addition to the above provisions, the AHCA also: 

  • Provides for federal matching grants to states to promote access to certain medical services, provider payments or cost-reduction measures for individuals enrolled in health insurance coverage in each state.
  • Imposes a surcharge on individuals reentering the market after a period without coverage. Individuals who are covered under individual or small group health insurance policies will be charged a 30 percent premium surcharge following a break in coverage of more than 63 days during the 12-month period preceding coverage. The premium penalty does not apply to individuals in the group market – including, presumably, those covered under COBRA. As written, the provision may encourage more former employees to elect COBRA coverage rather than exchange coverage in order to avoid the potential penalty. 
  • Would allow insurance companies to vary the premium rate for coverage in the individual and small group market based on age by up to 5:1 (or higher, if permitted by the state), which may result in higher premiums for pre-Medicare retirees who seek coverage on the individual market using HRA contributions. 
  • Provides for a new refundable tax credit for coverage purchased on the individual market of up to $4,000 per year, adjusted for age and income. The credit is available only to U.S. citizens or nationals (or qualified aliens) who are not incarcerated, are covered by either individual health insurance or certain unsubsidized COBRA coverage and are not eligible for employer-sponsored coverage (as certified by the employer). 
  • Allows both spouses to make catch-up contributions to the same HSA account, allows expenses incurred up to 60 days prior to the establishment of an HSA to be treated as eligible HSA expenses, and increases the maximum amounts that can be contributed to HSAs to the amount of the out-of-pocket limit, effective December 31, 2017.

What is not in the bill? 

The AHCA does not repeal or amend certain provisions that are key to employer-sponsored health plans, including: 

  • Mandatory pre-existing condition coverage,
  • Mandatory coverage for children up to age 26,
  • Prohibitions on annual and lifetime limits, 
  • Caps on out-of-pocket spending, 
  • Prohibitions on rescissions, 
  • Prohibitions on waiting periods longer than 90 days,
  • Mandatory first-dollar preventive care coverage, 
  • Prohibitions on discrimination in health plans, 
  • Essential health benefit requirements, or 
  • Internal Revenue Code sections 6055/6056 reporting. 

Republican leadership has now signaled that it will take a “three-pronged” approach to repealing and replacing the remaining portions of the ACA. However, as noted in the first installment of our ACA Briefs, the process, timing and ultimate question of whether the non-budget-oriented provisions may be repealed at all are still unclear. 

What does this mean for large employer-sponsored plans?

The AHCA cleared the respective committees on March 9, but has been met with several political challenges. The March 31 CBO report estimated that while enacting the legislation would result in a $337 billion reduction in the federal deficit over 10 years, it would also result in a corresponding increase in the number of uninsured Americans by 24 million. The estimated number of uninsured Americans has increased the likelihood that this draft will see considerable revisions in the form of a manager’s amendment, most likely affecting the roll-back of the Medicaid expansion and tax credit reduction provisions. The legislation will likely move to the House Budget Committee, and eventually to the full U.S. House of Representatives for a floor vote. In order for the legislation to reach the President’s desk, it must survive any procedural challenges by Senate Democrats, and earn a unanimous vote by a united Republican caucus. To date, however, serious fractures in the Republican caucus still place the future of the AHCA in question, with certain key stakeholders signaling that additional changes may be necessary in order for the legislation to gain undivided support from Senate Republicans.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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