The American Health Care Act: 6 Takeaways for Employers

House Republicans recently unveiled budget reconciliation proposals to repeal and replace parts of the Patient Protection and Affordable Care Act (PPACA). The proposals developed by the House Ways and Means and Energy and Commerce Committees, referred to as the American Health Care Act (AHCA), were released on the evening of Monday, March 6th. On March 9, the recommendations cleared the Ways and Means and Energy and Commerce Committees as a consolidated bill. The bill now heads to the House Budget Committee. The full House is expected to act on the AHCA prior to a spring break scheduled for April 7.

On March 13, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimated that the bill would reduce federal deficits by $337 billion from 2017 to 2026. Reductions in funding for Medicaid and PPACA’s tax credits and cost-sharing subsidies provide the largest savings, while the largest costs would result from the repeal of many of the ACA’s taxes and fees. In addition to the budgetary impact, the CBO and JCT estimate that up to 14 million more people would be uninsured in 2018 under the AHCA than under current law. The CBO and JCT reason that the increase in the number of uninsured would stem from the elimination of the individual mandate, increases in premiums, and rolling back the Medicaid expansion. A short-term increase of 15 to 20 percent in nongroup premiums is also predicted, but premiums may stabilize over time under the legislation.

Takeaways for Employers

Several provisions of the AHCA will impact employers if the AHCA is signed into law. Six key takeaways for employers are listed below.

1. Employer Mandate Penalties Reduced to Zero

The AHCA would reduce penalties under Code 4980H(a) and (b) to zero effective for tax years beginning on or after December 31, 2015. This means that penalties would not be assessed against Applicable Large Employers for the 2016 tax year. Whether penalties would be collected for the 2015 tax year is not known. Individual Mandate penalties would also be reduced to zero for tax years beginning on or after December 21, 2015.

2. Reporting Requirements Remain in Effect

Although the AHCA would reduce Employer Mandate penalties to zero, it would not repeal the Code 6055 and 6056 reporting requirements that currently apply to employers with self-funded group health plans and Applicable Large Employers. The AHCA’s new tax credit structure would not replace PPACA’s premiums tax credits until 2020. In the meantime, employers will continue to be subject to some form of reporting. The AHCA contemplates a new simplified reporting method for employers on the Form W-2.

3. The Cadillac Tax is Back

The AHCA does not repeal PPACA’s 40 percent excise tax (the Cadillac Tax) on high-cost employer sponsored health coverage. Instead, it delays the effective date of the tax to 2025. Originally scheduled for implementation in 2018, the tax was delayed until 2020 under the Obama administration. Absent from the AHCA is a cap on the employer tax exclusion for health benefits that appeared in a discussion draft of a PPACA replacement bill leaked to the media prior to the introduction of the AHCA.

4. Changes to Account-based Plans

The AHCA would change several current rules that apply to health Flexible Spending Accounts (FSAs) and Heath Savings Accounts (HSAs). HSA contribution limits would be increased to match high deductible health plan out of pocket limits, and spouses would be able to make catch-up contributions to the same HSA. The AHCA would remove the health FSA contribution limit. HSA and health FSA could be used for over the counter medications. Currently, HSA and health FSA funds cannot be used for over the counter medications without a prescription.

5. Continuous Coverage Incentives Replace the Individual Mandate

To encourage individuals to maintain health insurance, the AHCA opts for a continuous coverage incentive. Individuals who have a lapse in coverage of more than 63 days will be required to pay a 30 percent premium surcharge for 12 months when coverage is purchased. Prior to 2015, group health plans were required to distribute certificates of creditable coverage. These certificates allowed employees to demonstrate continuous coverage in order to avoid exclusion of claims related to pre-existing conditions. This concept may return if individuals are required to substantiate continuous coverage to avoid a 30 percent premium surcharge.

6. New Tax Credits Not Available to Employees Eligible for Employer Coverage

The AHCA’s tax credits would be unavailable to employees who are eligible for employer-sponsored coverage. Unlike PPACA, the AHCA does not consider the cost or minimum value of employer-sponsored coverage. Tax credits begin at $2,000 per year for individuals under age 30. For individuals over age 60, the tax credits max out at $4,000 per year. The AHCA contemplates a new statement provided by employers. An employee applying for individual coverage must produce this statement to verify lack of eligibility for employer-sponsored coverage before a tax credit may be claimed. The AHCA does not specify the form of this new statement.

What remains of the ACA?

Although reconciliation provides a pathway to repeal and replace provisions of PPACA with fewer legislative barriers, a bill passed through budget reconciliation cannot accomplish a full-scale repeal of PPACA. Reconciliation rules limit the ability of Congress to repeal provisions of PPACA that do not impact the federal budget.

Thus, many of the most popular consumer protections of PPACA remain. The AHCA does not impact the requirement to cover dependent children to age 26, the prohibition on pre-existing condition exclusions, the prohibition on annual or lifetime dollar limits for Essential Health Benefits, and the requirement to cover preventive care without cost-sharing.

Conclusion

Stay tuned to the Healthcare Reform Digest for additional legislative developments.

 

 

 

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