The following Update provides an overview of the second attempt by the Republican to repeal the Affordable Care Act. The first bill failed to pass in March 2017.
Shortly after the failure of the Republicans’ Affordable Care Act (ACA) replacement in March 2017, the American Health Care Act (AHCA), GOP leaders continued to quietly work to change the bill enough to gain passage. On May 4, 2017, House members voted on party lines to pass an amended version of the American Health Care Act – proposed legislation to repeal and replace the ACA. The AHCA will now move on to be considered by the Senate.
If passed there, on to the Senate-House Reconciliation process. New developments will emerge on a daily basis, making it difficult to pin down the status of employer compliance regulations at this point in the legislative process. However, we understand that our clients are anxiously curious about the impact a potential replacement would have on the insurance products they offer.
Unless the AHCA is passed by the Senate and signed by President Trump, the ACA will remain intact.
WHAT IS THE PROPOSED LEGISLATION?
As the proposed ACA replacement plan stands today, employers would not be required to provide group health insurance. The employer and employee mandates are eliminated. Employees who are not offered a (compliant) plan could receive a minimum of $2,000 tax credit toward the purchase of an insurance plan on the open market.
In addition to these provisions which were in the previously proposed bill, two major amendments were added in order to achieve the majority needed for passage in the House:
(1) The MacArthur amendment allows states to seek waivers, essentially to opt out, from certain Obamacare requirements: pricing of plans, pre-existing conditions and required Essential Health Benefits, and;
(2) The Upton amendment addresses additional funding for states’ high risk pools in an attempt to ensure coverage for persons needing expensive care and treatment.
ACA PROVISIONS NOT IMPACTED
The majority of the ACA would not be affected by the AHCA. The MacArthur amendments specifically maintain most of the ACA’s market reforms. For example, the following key ACA provisions would remain in place:
- Cost-sharing limits on essential health benefits (EHBs) for non-grandfathered plans (currently $7,150 for self-only coverage and $14,300 for family coverage)
- Prohibition on lifetime and annual limits for EHBs
- Requirements to cover pre-existing conditions
- Coverage for adult children up to age 26
- Guaranteed availability and renewability of coverage
- Nondiscrimination rules (on the basis of race, nationality, disability, age or sex)
- Prohibition on health status underwriting
- Age rating restrictions would also continue to apply, with the age ratio limit being revised to 5:1 (instead of 3:1), and states would be allowed to set their own limits. The MacArthur amendments also reinstate EHBs as the federal standard, eliminating a prior controversial amendment to the AHCA, although states may obtain waivers from these rules.
- One or more employers for the benefit of their employees or former employees;
- One or more employee organizations for the benefit of their members or former members;
- Jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees;
- A voluntary employees’ beneficiary association (VEBA); or
- Other specified organizations, including a multiple employer welfare arrangement
REPEALING THE EMPLOYER/INDIVIDUAL MANDATE
The ACA imposes both an employer and individual mandate. The AHCA would reduce the penalties imposed under these provisions to zero beginning in 2016, effectively repealing both mandates (although they would technically still exist).
However, beginning with open enrollment for 2019, the AHCA would allow issuers to add a 30 percent late-enrollment surcharge to the premium cost for any applicants that had a lapse in coverage for greater than 63 days during the previous 12 months. The late-enrollment surcharge would be discontinued after 12 months.
REPLACING HEALTH INSURANCE SUBSIDIES WITH TAX CREDITS
The ACA currently offers federal subsidies in the form of premium tax credits and cost-sharing reductions to certain low-income individuals who purchase coverage through the Exchanges. The AHCA would repeal both of these subsidies, effective in 2020, and replace them with a portable, monthly tax credit for all individuals that could be used to purchase individual health insurance coverage.
The AHCA would also repeal the ACA’s small business tax credit beginning in 2020. In addition, under the AHCA, between 2018 and 2020, the small business tax credit generally would not be available with respect to a qualified health plan that provides coverage relating to elective abortions.
STATE WAIVERS
The MacArthur amendments include an option for states to obtain limited waivers from certain federal standards, in an effort to lower premiums and expand the number of insured. Under this option, states could apply for waivers from the ACA’s EHB requirement and community rating rules, except that states could not allow rating based on:
- Gender;
- Age (except for reductions in the 5:1 ratio already included by the AHCA); or
- Health status (unless the state established a high-risk pool or is participating in a federal high-risk pool).
To receive the waiver, states would need to attest that the purpose of the waiver is to reduce premium costs, increase the number of individuals with health coverage or advance another benefit to the public interest in the state (including guaranteed coverage for individuals with pre-existing condition exclusions).
STATE STABILITY FUND
The last set of corrective amendments to the AHCA establishes a Patient and State Stability Fund for 2018 through 2023. This fund is intended to provide an additional $8 billion to states that have applied for, and been granted, a waiver from community rating, as specified by the MacArthur amendments.
The funds would be required to be used in “providing assistance to reduce premiums or other out-of-pocket costs” of individuals who may be subject to an increase in their monthly premium rates because they:
- Reside in a state with an approved waiver;
- Have a pre-existing condition;
- Are also uninsured because they have not maintained continuous coverage; and
- Purchase health care in the individual market.
ENHANCEMENTS TO HEALTH SAVINGS ACCOUNTS (HSA)S
HSAs are tax-advantaged savings accounts tied to a high deductible health plan (HDHP), which can be used to pay for certain medical expenses. To incentivize use of HSAs, the AHCA would:
- Increase the maximum HSA contribution limit: The HSA contribution limit for 2017 is $3,400 for self-only coverage and $6,750 for family coverage. Beginning in 2018, the AHCA would allow HSA contributions up to the maximum out-of-pocket limits allowed by law (at least $6,550 for self-only coverage and $13,100 for family coverage).
- Allow both spouses to make catch-up contributions to the same HSA: The AHCA would allow both spouses of a married couple to make catch-up contributions to one HSA, beginning in 2018, if both spouses are eligible for catch-up contributions and either has family coverage.
- Address expenses incurred prior to establishment of an HSA: Under the AHCA, starting in 2018, if an HSA is established within 60 days after an individual’s HDHP coverage begins, the HSA funds would be able to be used to pay for expenses incurred starting on the date the HDHP coverage began.
RELIEF FROM ACA TAX CHANGES
The AHCA would provide relief from many of the ACA’s tax provisions. The amendments made to the AHCA accelerated this relief by one year for most provisions, moving the effective dates for repeal up to 2017. The affected tax provisions include the following:
- Cadillac tax: The ACA imposes a 40 percent excise tax on high cost employer-sponsored health coverage, effective in 2020. The AHCA would change the effective date of the tax, so that it would apply only for taxable periods beginning after Dec. 31, 2025.
- Restrictions on using HSAs for over-the-counter (OTC) medications: The ACA prohibits taxpayers from using certain tax-advantaged HSAs to help pay for OTC medications. The AHCA would allow these accounts to be used for OTC purchases, beginning in 2017.
- Increased tax on withdrawals from HSAs: Distributions from an HSA (or Archer MSA) that are not used for qualified medical expenses are includible in income and are generally subject to an additional tax. The ACA increased the tax rate on distributions that are not used for qualified medical expenses to 20 percent. The AHCA would lower the rate to pre-ACA percentages, beginning with distributions in 2017.
- Health flexible spending account (FSA) limit: The ACA limits the amount an individual may contribute to a health FSA to $2,500 (as adjusted each year). The AHCA would repeal the limitation on health FSA contributions for taxable years beginning in 2017.
- Additional Medicare tax: The ACA increased the Medicare tax rate for high-income individuals, requiring an additional 0.9 percent of wages, compensation and self-employment income over certain thresholds to be withheld. The AHCA would repeal this additional Medicare tax beginning in 2023.
- Deduction limitation for Medicare Part D subsidy: The ACA eliminated the ability for employers receiving the retiree drug subsidy to take a tax deduction on the value of this subsidy. Effective in 2017, the AHCA would repeal this ACA change and reinstate the business-expense deduction for retiree prescription drug costs without reduction by the amount of any federal subsidy.
Beginning after December 31, 2016, the AHCA would also repeal the medical devices excise tax, the health insurance providers fee and the fee on certain brand pharmaceutical manufacturers. The 10 percent sales tax on indoor tanning services would be repealed effective June 30, 2017, to reflect the quarterly nature of this collected tax. Finally, the AHCA would also reduce the medical expense deduction income threshold to 5.8 percent (lower than the pre-ACA level of 7.5 percent), beginning in 2017.
MODERNIZE MEDICARE
The AHCA would repeal the ACA’s Medicaid expansion, and make certain other changes aimed at modernizing and strengthening the Medicaid program. The amendments to the AHCA made a number of modifications to the proposed Medicaid changes. For example, the AHCA would provide enhanced federal payments to states that already expanded their Medicaid programs, and then transition Medicaid’s financing to a “per capita allotment” model starting in 2020, where per-enrollee limits would be imposed on federal payments to states. It would also allow states the option to implement a work requirement for nondisabled, nonelderly, nonpregnant adults as a condition for receiving Medicaid coverage.
The AHCA would also modernize Medicaid’s data and reporting systems, repeal the ACA’s disproportionate share hospital (DSH) cuts and make changes to the process for eligibility determinations.
WHAT CREATIVE BENEFITS & INSURANCE SOLUTIONS IS DOING TO HELP!
CBIS is monitoring legislative developments on a moment-by-moment basis. We maintain a team of employees and benefit consultants that are in constantly reviewing the debate and direction of the repeal and replacement of the ACA. This enables us to see beyond the current news coverage and better understand what is truly happening.
ADDITIONAL INFORMATION
Information contained in this Important Updates—In The Know & How It Applies is not intended to render tax or legal advice. Employers should consult with qualified legal and/or tax counsel for guidance with respect to matters of law, tax and related regulations. Creative Benefits & Insurance Solutions provides comprehensive benefits advice and administrative services with respect to all forms of employee benefits, risk management, property & casualty, workers’ compensation, staffing insurance and human resources services. For additional information about our services, please contact us at (586) 992-0404 or email us at service@cbis-lc.com.
Creative Benefits & Insurance Solutions 