The U. S. House of Representatives (the House) proposed two bills to “repeal and replace Obamacare” last week, and while many popular consumer protections under the Patient Protection and Affordable Care Act (ACA) look to be preserved at this stage, some significant changes are included that could have an impact on employers and other plan sponsors if signed into law. We’ve highlighted a few of these potential changes below.
While the bills, which together have been named “The American Health Care Act,” will likely be amended or otherwise modified as they make their way to the president, it is our first real glimpse of what Congress and the Trump administration envision for the future of healthcare. Until new legislation is signed by the president, we recommend staying the course with respect to your current ACA compliance strategy.
Mandates Go, But Some Consumer Protections Stay
The individual mandate, as well as the mandate for large employers to offer coverage to full-time employees (often referred to as the “play-or-pay” mandate), would effectively be repealed by reducing applicable penalties to zero, retroactive to January 1, 2016. A proposed repeal of these mandates comes as no surprise. Under the ACA, the mandates sought to enroll healthy individuals to bring down the cost of premiums for all. Under the new legislation, there would be an incentive instead, where an individual who fails to have coverage would pay an increased premium to the issuer rather than a penalty to the federal government. This “continuous coverage incentive” begins in 2018 for certain individuals and would impose a 30% premium surcharge if their coverage lapsed for more than 63 days during the 12-month period preceding enrollment—regardless of health status.
The legislation retains consumer protections that have become popular under the ACA, such as coverage for dependent children to age 26 and prohibitions on annual and lifetime limits. Also, no repeal is proposed for the prohibition on preexisting condition exclusions.
The legislation also proposes, effective in 2018, to prohibit the use of premium tax credits at the public Marketplaces to pay for any plan covering abortion services, other than services for saving the life of the woman or in cases of rape or incest, and to place a one-year freeze on federal Medicaid funding for Planned Parenthood and any other “prohibited entity” providing such abortion services.
Promotion of Consumer-Driven Healthcare
The legislation would loosen restrictions and increase limits beginning in 2018 on certain tax-favored accounts used to pay for qualified medical expenses. The maximum contribution to a health savings account (HSA) would increase to equal the sum of the annual deductible and out-of-pocket expenses under the high-deductible health plan (HDHP), which could be over $13,000 for family coverage. Both spouses could make catch-up contributions of up to $1,000 each to the same HSA. The excise tax for using HSA funds for ineligible expenses would be reduced from 20% to 10%. And qualified medical expenses may be incurred up to 60 days before the HSA was established.
Similarly for health flexible spending accounts (Health FSAs), the $2,500 ($2,600 as adjusted for inflation for 2017) ACA cap on contributions to Health FSAs would be repealed for tax years beginning with 2018. And for Health FSAs, HSAs and other tax-advantaged medical savings accounts, the ACA prohibition on the use of funds for over-the-counter medications would be repealed for tax years beginning with 2018.
Refundable Tax Credits for Health Coverage
Under the ACA, federal tax subsidies at the public Marketplaces are based on household income and reduce the cost of an individual’s Marketplace policy. The legislation would replace these subsidies with an age-based refundable tax credit. The credit would range from $2,000 for individuals who are under 30 years old to $4,000 for individuals aged 60 and over, capped at $14,000 per family. The credit would be phased out for individuals with modified adjusted gross incomes over $75,000 ($150,000, filing jointly).
The legislation delegates the authority to the U.S. Secretary of the Treasury to create a simplified reporting method for employers offering coverage to employees for purposes of tax credit eligibility that will use Form W-2. While no changes have been included with respect to the complex ACA reporting on Forms 1094/1095-B/C, the House Committee on Ways and Means intends that the new reporting methodology will make the ACA reporting redundant, allowing the Secretary of the Treasury to cease enforcement of the current ACA reporting.
Further Delays to the Cadillac Tax
The ACA’s 40% excise tax on high-cost, employer-sponsored health coverage, known as the “Cadillac Tax,” was previously postponed to become effective in 2020. The legislation proposes to further postpone the effective date to the 2025 tax year.
Rolling Back Medicaid Expansion
Beginning in 2020, the legislation would repeal Medicaid expansion for adults with income above 133% of the federal poverty line. Also in 2020, state Medicaid coverage would no longer be required to provide essential health benefits required by the ACA. In addition, federal funds would be provided under a “per capita cap model”—imposing per-enrollee limits on federal Medicaid payments to states.
While it is important to stay abreast of any proposed legislation, until the American Health Care Act has been signed by the president, we recommend that you stay the course with respect to your current ACA compliance strategy. Stay tuned and watch for our future updates as the Trump administration works towards its campaign promise of repealing the ACA.
For more information, here are some links to copies of the proposed bills: House Ways and Means Committee Bill: Legislation and Section-by-Section Summary; and House Energy and Commerce Committee Bill: Legislation and Section-by-Section Summary.