The U.S. Senate Republicans on July 13, 2017, released an updated discussion draft of the Better Care Reconciliation Act of 2017 (BCRA), its bill to repeal and replace the Affordable Care Act (ACA). As we have outlined in a prior client alert, the original BCRA contained a number of provisions that will have a direct impact on employers
This alert highlights the provisions of the revised BCRA that will have a direct impact on employers and specifically addresses the areas where the new draft differs from the original draft of the BCRA and the U.S. House of Representative's version, the American Health Care Act of 2017 (AHCA).
It is important to understand that the proposals outlined above have not yet become law. The Senate is hoping to hold a vote on these proposals before its summer recess later in August. Although it is unclear if the bill as currently drafted will pass the Senate or if it will even be brought up for a vote as it is unclear if there are enough votes to pass the revised BCRA. If the revised bill does pass, it will either go to the House for a vote or will have to be reconciled with the AHCA.
The U.S. Senate Republicans on July 13, 2017, released an updated discussion draft of the Better Care Reconciliation Act of 2017 (BCRA), its bill to repeal and replace the Affordable Care Act (ACA). As we have outlined in a prior client alert, the original BCRA contained a number of provisions that will have a direct impact on employers. The U.S. House of Representatives passed the American Health Care Act of 2017 (AHCA), its version of a repeal and replacement of the ACA on May 4, 2017 (see Holland & Knight alert, "Passed House AHCA Bill Contains Numerous Provisions Affecting Employers," May 11, 2017).
This alert highlights the provisions of the revised BCRA that will have a direct impact on employers and specifically addresses the areas where the new draft differs from the original draft of the BCRA and the AHCA.
Repeal of Individual and Employer Mandates
The ACA requires employers with at least 50 full-time equivalent employees (applicable large employers) to either offer health insurance to full-time employees or pay a penalty. Just as all previous bills have done, the revised 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 effective as of Jan. 1, 2016.
The Jan. 1, 2016 effective date means that employers impacted by the penalty in 2016 and 2017 would be able to obtain retroactive relief from such penalties. The revised BCRA does not repeal any of the reporting obligations imposed upon employers by the ACA meaning that employers would still be required to complete the information reporting required under the ACA. As we have previously noted, it is possible that the current employer reporting structure could be simplified following passage of the BCRA given the structure of the new premium tax credit for individuals, which would not require an inquiry into whether an individual received an offer of affordable coverage from their employer.
The revised BCRA also effectively eliminates the individual mandate imposed by the ACA by reducing the penalty for mailing to maintain minimum essential coverage to zero 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 attempts to encourage individuals to sign up for health insurance however, by imposing waiting periods for individuals attempting to sign up for coverage if such individual had a period where he or she was not covered by an insurance policy (subject to certain exceptions).
The revised BCRA also keeps in place the modifications to the current tax credit provisions and allows individuals to purchase health insurance on an open market. Tax credits under the BCRA are based on an individual's age, income and geography. The plans used to determine the amount of the credit continue to not be 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. Importantly, the revised BCRA expands the type of coverage that be subsidized by the tax credit to include catastrophic health plans.
Health Savings Accounts
As with the initial draft of the BCRA, the revised BCRA raises the limits on annual health savings account (HSA) contributions per year to $6,650 for self-only coverage and $13,300 for family coverage beginning in 2018. 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 revised BCRA also retains language from the original BCRA 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.
The revised BCRA retains language from the original BCRA 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.
There are also new provisions relating to HSAs in the revised BCRA. The revised BCRA allows for HSA funds to be used to pay premiums for certain health plans for which HSA funds cannot currently be used for, namely high deductible health plans. Currently, funds set aside on a tax-free basis into an HSA can only be used to pay for qualified medical expenses, which generally does not include premiums for health insurance coverage.
Essential Health Benefits
The revised BCRA continues to allow 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. As we have previously noted, this change could have a 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.
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 revised 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"
The revised BCRA does not make any change to the proposed delay of the implementation of the tax on the cost of health coverage that exceeds certain premium thresholds (the "Cadillac tax") until 2026. Currently, this tax is not scheduled to be implemented until 2020.
Health Flexible Spending Accounts
The revised BCRA continues to remove 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) beginning in 2018.
Medicare Part D Subsidy
The revised BCRA also 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. This means that the deduction will once again be available beginning this year for employers that are assisting their Medicare-eligible former employees to receive greater prescription drug benefits.
Provisions Affecting Small Businesses
The revised BCRA retains the 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 revised BCRA, the credit would no longer be available beginning in 2020. But, just as was the case under the initial BCRA, small business 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 revised BCRA keeps in place many of the rules set forth in the initial draft of the BCRA setting up a new small business risk-sharing pool that allows small businesses to come together to offer coverage for their combined groups of employees through a fully insured "small business health plan." Under these provisions new small business health plans would be exempt from state regulations and such plans could be purchased across state lines. As was the case under the initial BCRA, these small business health plans would be group health plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). It is still not clear from the language in the revised 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.
Medicare Surtax Left in Place
Unlike the AHCA and the initial BCRA, the revised BCRA does not repeal the additional 0.9 percent Medicare surtax that was imposed under the ACA. The revised BCRA leaves the current law untouched, meaning that the additional 0.9 percent Medicare surtax would continue to apply 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. Just as is the case under current law, employers would still be required to withhold such amounts from an individual's wages.
Insurance Provider Remuneration Limit Remains in Place
The revised BCRA also keeps in place the ACA limitation imposed by Code Section 162(m)(6). This means that certain health insurance providers will not be able to deduct as an ordinary and necessary business expense remuneration in excess of $500,000 paid to officers, directors or employees, which is the same limit that is currently in place.
As we have noted in prior alerts, it is important to understand that the proposals outlined above have not yet become law. The Senate is hoping to hold a vote on these proposals before its summer recess later in August. Although it is unclear if the bill as currently drafted will pass the Senate or if it will even be brought up for a vote as it is unclear if there are enough votes to pass the revised BCRA. If the revised bill does pass, it will either go to the House for a vote or will have to be reconciled with the AHCA.
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 (and the prior BCRA draft). Therefore, the likelihood continues to be 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 revised BCRA. Employers should continue to monitor the situation to understand the potential consequences and opportunities associated with whatever final legislation is passed.