U.S. Senate Republicans have released a discussion draft of the Better Care Reconciliation Act of 2017 (BCRA), the Senate's bill to repeal and replace the Affordable Care Act (ACA).
Although a number of provisions in the BCRA that impact employers are the same as the provisions in the U.S. House of Representatives' American Health Care Act (AHCA) of 2017, there are some new provisions in the BCRA that impact employers.
The Senate hopes to hold a vote on these proposals before its July 4 recess. Although it is unclear if the bill as currently drafted will pass the Senate, if the bill does pass, it will either go to the House for a vote or will have to be reconciled with the ACHA.
U.S. Senate Republicans on June 22, 2017, released a discussion draft of the Better Care Reconciliation Act of 2017 (BCRA), its bill to repeal and replace the Affordable Care Act (ACA). The BCRA follows on the heels of the House of Representative's passage of its own bill to repeal the ACA, the American Health Care Act of 2017 (AHCA). The BCRA contains a host of provisions affecting individual insurance markets, Medicaid, and other areas of healthcare and related taxes and tax credits, but just as we described in earlier alerts regarding the AHCA (see Holland & Knight's alert, "Passed House AHCA Bill Contains Numerous Provisions Affecting Employers," May 11, 2017), this alert covers a number of provisions that will have a direct impact on employers.
Although a number of provisions in the BCRA that impact employers are the same as the provisions in the AHCA, there are some new provisions in the BCRA that impact employers, and some of the provisions of the AHCA that impacted employers are slightly different in the BCRA.
Under the ACA, employers with at least 50 full-time equivalent employees (applicable large employers) must either offer health insurance to its full-time employees or pay a penalty. Just as the AHCA proposed, the BCRA amends the Internal Revenue Code of 1986, as amended (Code) to reduce the penalty for failing to offer health insurance to such full-time employees to zero dollars. The BCRA provides that this reduction in penalty is to be effective as of Jan. 1, 2016, meaning that employers impacted by the penalty in 2016 and 2017 will be able to obtain retroactive relief from such penalties.
Just like the AHCA, the BCRA eliminates the employer penalty for failing to offer health insurance, but the reporting obligations imposed upon employers by the ACA is not repealed. Therefore, employers will still be required to complete the information reporting required under the ACA. However it is possible that the current employer reporting structure could be simplified given the structure of the new premium tax credit for individuals, which under either bill would not require an inquiry into whether the individual had an offer of affordable coverage from their employer.
The BCRA also effectively eliminates the individual mandate imposed by the ACA. While the Code will still require applicable individuals to maintain minimum essential coverage, the penalties for failing to maintain such coverage will be lowered to zero. The reduction in penalties for failing to maintain minimum essential coverage is to be effective as of Jan. 1, 2016. This means that individuals who may have paid a penalty in 2016 could also obtain retroactive relief from such penalties.
The BCRA, like the AHCA, modifies the current tax credit provisions and would allow individuals to purchase health insurance on an open market. Under the AHCA, tax credits were to be based primarily upon an individual's age. The BCRA expands the criteria used to determine the tax credits to include income and geography. However, the plans used to determine the amount of the credit are not as robust as those currently used under the ACA, and individuals would need to have lower incomes than they currently have under the ACA in order to qualify for such credits. Although the AHCA would allow individuals to get tax credits outside health insurance marketplaces, the BCRA contemplates that tax credits are available only to those who use such marketplaces.
Essential Health Benefits
The BCRA retains the AHCA's provision allowing states to request a waiver to opt out of the ACA's categories of "essential health benefits," which include, for example, emergency care, prescription drug coverage, and maternity and newborn care. This change would continue to have a potentially significant impact on employer-provided health plans, as the ACA prohibits health plans from imposing annual or lifetime dollar limits, as well as limits the amount an enrollee can pay out of pocket on these essential health benefits. Large employers are currently able to use any state's definition of "essential health benefits" to determine whether they are in compliance with the ACA, but because the ACA imposes federal standards on essential health benefits, there is currently not a lot of variation between the states as to what health benefits are "essential."
If states are able to opt out of the ACA's categories of essential health benefits and develop their own essential health benefit definitions, and if large employers are still able to use any state's benchmark, employers could impose annual or lifetime dollar limits on certain benefits that may have previously been defined as essential health benefits under the ACA. This would mean that, if, for example, a state chooses to exclude emergency care or prescription drug coverage as an essential health benefit, plans of large employers could impose annual or lifetime limits on such coverages. Although it is likely that some employers will keep robust plans in place to attract and retain workers, if the BCRA is passed into law and taken advantage of by states, large employers could have additional flexibility on what is offered to its employees and their dependents.
If a state were to choose a bare-bones definition of what constitutes an essential health benefit, employer-provided coverage under the BCRA could provide very little in the way of actual coverage for those covered by the plan, or those who are covered could face much higher premiums (including portions of the premium that may be paid by the employer) to receive certain benefits that were considered "essential" under the ACA.
Delay of "Cadillac Tax"
Although the ACA originally imposed a non-deductible, high-cost plan excise tax equal to 40 percent of the cost of health coverage that exceeds certain premium thresholds (commonly known as the "Cadillac tax"), the AHCA delayed implementation of such tax until no earlier than Jan. 1, 2026. Originally scheduled to take effect in 2018 and then delayed by Congress until 2020, the BCRA follows the AHCA and delays the tax to 2026.
Health Savings Accounts
The BCRA retains the language in the AHCA with respect to health savings accounts (HSAs). Starting in 2018, the BCRA raises the limits on annual HSA contributions per year to $6,650 for self-only coverage and $13,300 for family coverage. The increase in these limits ties the amounts that individuals can contribute to their HSAs to the maximum amount of the annual deductible and out-of-pocket expense limits under a high deductible health plan (HDHP).
The BCRA also retains language from the AHCA allowing married couples that are ages 55 or older to make catch-up contributions to the same HSA rather than solely to a separate HSA in the name of the spouse making the catch-up contribution.
Finally, the BCRA retains language from the AHCA providing that, beginning in 2018, if an HSA is established during the 60-day period beginning on the date that an individual's coverage under an HDHP begins, then, solely for determining whether an amount paid is for a qualified medical expense, such HSA is to be treated as if it was established when the coverage began.
Health Flexible Spending Accounts
Similar to the AHCA, the BCRA removes the upper limit on employee salary reduction contributions to health flexible spending accounts (the current limit for voluntary employee salary reductions is $2,600, which may or may not be matched by an employer). However, the BCRA removes this cap beginning in 2018, one year later than what was proposed in the AHCA.
Repeal of Medicare Surtax
The BCRA keeps the AHCA's repeal of the additional 0.9 percent Medicare surtax. Under current law, an additional 0.9 percent Medicare surtax applies to an employee's wages (or a self-employed individual's self-employment income) above $200,000 for an individual or $250,000 for a married couple. Employers are required to withhold such amounts from an individual's wages. However, beginning in 2023, the BCRA provides that this additional 0.9 percent surtax will no longer be imposed.
Medicare Part D Subsidy
Just like the AHCA, the BCRA reintroduces the allowance of a tax deduction for employers that receive a subsidy for offering certain levels of prescription drug benefits to its retired employees. Under the BCRA, the deduction will once again be available beginning this year for such employers that are assisting their Medicare-eligible former employees receive greater prescription drug benefits.
Remuneration from Certain Insurance Providers
The BCRA keeps the AHCA's repeal of the $500,000 limit on remuneration paid to officers, directors or employees of certain health insurance companies beginning in 2017. The ACA added Code Section 162(m)(6) to provide that certain health insurance providers could not deduct as an ordinary and necessary business expense remuneration in excess of $500,000 paid to officers, directors or employees. If the BCRA is signed into law, the removal of this limit means that such providers would be subject to the general $1 million limitation applicable to named executive officers set forth in Code Section 162(m) beginning this year.
Provisions Affecting Small Businesses
The BCRA also retains the AHCA repeal of the ACA's tax credit for certain employers with less than 25 full-time equivalent employees that provided qualified healthcare coverage for its employees through the small business health options program marketplace. Under the BCRA, the credit would no longer be available beginning in 2020. However, such employers will not be eligible for a credit beginning in 2018 if the coverage it purchases for its employees includes coverage for abortions (unless such abortions are necessary to save the life of the mother or with respect to pregnancies that are the result of rape or incest).
In addition, the BCRA sets forth rules for a new small business risk-sharing pool that would allow small businesses to come together to offer coverage for their combined groups of employees through a fully insured "small business health plan." The small business risk-sharing pool provisions found in the BCRA largely mirror provisions found in the Small Business Health Fairness Act, a bill passed by the House of Representatives on March 22, in a vote separate from the vote on the first version of the AHCA. The proposed small business risk-sharing pool provisions would exempt the new small business health plans from state regulation and allow such plans to be purchased across state lines. Small business health plans would, however, be group health plans and, therefore, subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). It is not clear from the language in the BCRA how large an entity may be and still qualify as a small business, though the BCRA authorizes the Secretary of Labor to issue regulations with respect to the small business risk-sharing pool provisions within six months after the date the provisions become effective. The small business risk-sharing pool provisions would become effective one year after enactment.
It is important to note that the proposals outlined above have not yet become law. The Senate hopes to hold a vote on these proposals before its July 4 recess. Although it is unclear if the bill as currently drafted will pass the Senate, if the bill does pass, it will either go to the House of Representatives for a vote or will have to be reconciled with the ACHA.
However, as described above, many provisions contained in the BCRA that are applicable to employers are nearly identical to the same provisions contained in the AHCA. Therefore, the likelihood is high that the final provisions contained in legislation that is ultimately passed will be similar to, or the same as, the provisions in the AHCA and the BCRA. Employers should continue to monitor the situation to understand the potential consequences and opportunities associated with whatever final legislation is passed.