The House Ways and Means and Energy and Commerce Committees have released, in two parts, budget reconciliation legislation, the first steps of Congress' proposal to "repeal and replace" the Affordable Care Act. Reconciliation legislation is limited to budget-related provisions and restricts legislators' ability to address fully all of the repeal and replacement provisions that we anticipate will be forthcoming.

The proposal will very likely be modified as it winds its way through the legislative process, but the initial reconciliation proposal includes the following highlights:

• Several of the most popular provisions established by the ACA, including the prohibition against pre-existing condition limitations and the extension of health coverage to children up to age 26, are not addressed in this proposal and remain in place at this time.

• The "employer mandate," which requires large employers to offer health coverage to full-time employees or pay a penalty, is eliminated as of the end of 2015 (with retroactive relief to those who would pay an employer mandate penalty for 2016).

• The "individual mandate," which requires individuals to enroll in health coverage or pay a penalty, is eliminated as of the end of 2015 (with retroactive relief to those who would pay an individual mandate penalty for 2016).

• The ACA's premium tax credits and cost-sharing subsidies for coverage purchased on an Exchange would continue through December 31, 2019, but in 2018 and 2019, many of the requirements for qualified health coverage are eliminated, permitting catastrophic-only coverage and prohibiting the payment of subsidies for plans offering elective abortion coverage.

• The current system of credits and subsidies would be replaced by the following refundable tax credits in 2020, adjusted by age, for individuals who purchase coverage and are not eligible for employer-sponsored or government health plans:

  • Under age 30: $2,000

  • Ages 30-39: $2,500

  • Ages 40-49: $3,000

  • Ages 50-59: $3,500

  • Age 60 or older: $4,000

The refundable tax credits are adjusted over time by the Consumer Price Index plus 1 percent and are phased out for those with income over $75,000 per year ($150,000 for joint filers). The credits are additive and are capped for families at $14,000.

• The three-to-one ratio cap on age-based premiums is loosened to a five-to-one ratio and states are given the flexibility to set their own ratios.

• Beginning in 2018 for special enrollment periods and 2019 for open enrollment, a 30 percent late enrollment penalty will be imposed for failure to maintain continuous coverage. The penalty will apply to anyone with more than a 63-day lapse in coverage over a 12-month look back period.

• The "Cadillac" tax on excess health coverage, which is currently scheduled to be effective in 2020, is delayed until 2025.

• Most of the additional taxes and revenue raisers imposed by the ACA on providers, insurers, plans, and individuals are repealed beginning in 2018, including the Medicare tax increase (currently 0.9 percent) and the net investment tax (3.8 percent).

• The limits on contributions to health savings accounts (HSAs) are increased, and would be at least $6,550 for single coverage and $13,100 for family coverage in 2018. Other limitations on HSAs are loosened.

• The $2,500 cap (as indexed) on contributions to health care flexible spending accounts (Health FSAs) imposed by the ACA is repealed beginning in 2018.

• Most of the Medicaid expansion provisions are repealed beginning in 2020, including the state option to provide coverage to adults above 133 percent of the federal poverty limit, the requirement to offer the same essential health benefits required for Exchange plans, and the Medicaid Disproportionate Share (DSH) cuts. The federal government's contributions for expansion expenditures are capped at CY2017 levels.

• The current federal funding provisions for Medicaid programs are replaced with a per capita cap model starting in FY2020. Administrative and DSH payments will be made outside of the cap. The benefits requirements for Medicaid plans will be returned to the states beginning on December 31, 2019.