Yesterday, each of the House Ways and Means Committee and the House Energy and Commerce Committee introduced separate bills, which together would form the American Health Care Act (the “AHCA”). The AHCA is intended to repeal and replace significant portions of the Affordable Care Act (the “ACA”).
New Law. The AHCA is intended only to make changes to the tax and revenue portions of the ACA. By doing so, the proposed legislation can be passed using the budget reconciliation process, which requires a majority vote in the Senate. (Senate rules otherwise would require a super-majority vote of 60 Senators.) Use of the budget reconciliation process increases the likelihood that the AHCA (in some revised form) will become law. However, with only a two-vote majority and many different opinions and factions among Republicans in the Senate, passage is not guaranteed. In addition, there is a question as to whether some of the provisions actually qualify for the budget reconciliation process.
Changes to Current ACA Taxes. The ACA tax provisions revised by the current version of the AHCA include:
- The Employer Mandate would be repealed retroactive to December 31, 2015.
- The Individual Mandate would be repealed retroactive to December 31, 2015.
- The Cadillac Tax would be delayed until 2025.
- The current income-based premium tax credits and cost-sharing subsidies available to lower-income individuals for the purchase of Exchange coverage would be replaced with an age-based, refundable tax credit for the purchase of individual market health insurance or unsubsidized COBRA coverage, as follows:
Ages Refundable Tax Credit
Under Age 30 $2,000
Between Ages 30 and 39 $2,500
Between Ages 40 and 49 $3,000
Between Ages 50 and 59 $3,500
Over Age 60 $4,000
The proposed refundable tax credit would be available to individuals who do not have access to health coverage through an employer or a government program.
This tax credit is additive for a family and is capped at $14,000 per family and phases out at the rate of $100 per additional $1,000 of income for taxpayers making more than $75,000 ($150,000 for joint filers) per year.
To stabilize insurance markets, the AHCA encourages individuals to maintain continuous health insurance coverage. If an individual applies for coverage after having a 63-day or longer lapse in coverage in the preceding 12 months, that individual’s cost of coverage may be increased by 30% for the next 12 months of coverage.
- ACA reporting would eventually be replaced with employers reporting offers of health coverage through simplified Form W-2 reporting. The current ACA reporting requirements cannot be repealed through the budget reconciliation process. However, the new law anticipates that the Secretary of Treasury will stop enforcing the current ACA reporting requirements when they become redundant as a result of the Form W-2 reporting.
- The ACA’s annual limitation of $2,500 (adjusted for cost increases) on Health Flexible Spending Account (FSA) contributions would be repealed for taxable years beginning after December 31, 2017.
- The annual Health Savings Account (HSA) aggregate contribution limit would increase to the annual deductible and out-of-packet limit under a high deductible health plan beginning in 2018. In 2018, the limit would be at least $6,550 for self-only coverage and $13,100 for family coverage.
Other Significant Changes. Other ACA provisions revised by the current version of the AHCA include:
- The ACA’s exclusion of over-the-counter medications from the Internal Revenue Code’s definition of “qualified medical expenses” would be repealed as of December 31, 2017. As a result, over-the-counter medications could be paid for from tax-advantaged health savings accounts, such as FSAs, HSAs and Health Reimbursement Accounts, beginning in 2018.
- The ACA’s Medicare surtax (0.9% on income over $200,000 ($250,000 on joint filers)) would be repealed for tax years beginning after December 31, 2017.
- The ACA’s Medical Device Tax would be repealed for tax years beginning after December 31, 2017.
- The ACA’s increased 10% threshold for individuals age 65 and over to obtain a medical expense deduction would be repealed for tax years beginning after December 31, 2017. The threshold would return to 7.5%. Special rules would apply for 2017.
ACA Market Reforms Unchanged. The ACA’s market reforms cannot be amended through the budget reconciliation process. As a result, the current version of the AHCA does not attempt to change the ACA’s market reforms. The ACA’s market reforms that will remain in effect include, for example:
- The prohibition on plans imposing pre-existing condition exclusions, and
- The ability for adult children to remain covered through their parent until age 26.
Next Steps. The introduction of the AHCA is the first step in the legislative process. The proposed law will likely undergo many changes before Congress votes on it. However, Republicans in Congress intend an expedited process for passage in the House and a floor vote in the Senate. Until the AHCA becomes law, employers will need to comply with current law. We will provide updates throughout the legislative process.
Contact Information. For additional information from Mazursky Constantine, please contact Don Mazursky (404.888.8840), Kelly Meyers (404.888.8838), Angela Roberts (404.888.8822), or Alex Smith (404.888.8839). For additional information from VCG Consultants, please contact Leslie Schneider (770.863.3617).