Through the budget reconciliation process, the U.S. House of Representatives issued two bills with the goal of repealing and replacing the Affordable Care Act (ACA). The Ways and Means Committee and the Energy and Commerce Committee released the measures which are collectively known as the American Health Care Act (AHCA). Debate on the proposed legislature began on March 8th, 2017.
How it Works
Under the current legislative process, a full repeal of the ACA is not possible. The bills were issued in response to a budget resolution that Congress passed on Jan. 13, 2017. The resolution directs the House and Senate Committees to pass budget reconciliation legislation. This instruction directs committees to submit legislation that changes existing law to bring revenues, spending, or the debt ceiling into compliance with the resolution. For a budget reconciliation bill to pass, it needs a simple majority vote in the House and Senate and approval from the president.
What Will Remain
The majority of the ACA isn’t affected by the new bills; the following ACA provisions would remain unchanged:
- 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 annual and lifetime limits for EHBs
- Obligations to cover pre-existing conditions
- Guaranteed coverage for children on their parent’s plan until age 26
- Guaranteed availability and renewability of coverage
- Nondiscrimination rules (based on race, nationality, disability, age, or sex)
- Prohibition on health status underwriting
- The obligation to offer the EHB package for individual and small group plans remains in place, but the AHCA will repeal the actuarial value requirement.
- Age rating restrictions would continue to apply, but the age limit revision would change from 3:1 to 5:1, and states would be allowed to set their caps.
- The AHCA would reduce the penalties imposed by the employer and individual mandate provisions to zero. While the penalties would technically exist, the fine would literally be zero dollars. This effectively renders the penalty meaningless.
Repealing Employer and Individual Mandates
The AHCA would impose what it calls a “continuous coverage incentive” to prevent premiums from rising due to adverse selection in health markets. Adverse selection happens when there aren’t enough low-risk customers purchasing insurance to cover the payouts of high-risk buyers.
In 2019, insurance providers would be permitted to add a 30% late-enrollment overcharge to the premium price for any applicants that had a lapse in coverage exceeding 63 days in the previous 12 months. The surcharge would discontinue after one year.
Replacing Health Insurance Subsidies with Tax Credits
The ACA currently offers federal subsidies through premium tax credits and cost-sharing reductions (CSRs) to qualifying low-income individuals and families that bought coverage on the Exchanges. If passed, the AHCA would repeal both of these subsidies, and replace them with a portable, monthly tax credit. The tax credit could be used by all individuals to buy any state-approved major medical health insurance and unsubsidized COBRA coverage.
The new tax credit would be available for immediate use and refundable. Age would partially dictate payments, with older individuals eligible to receive larger credits. There would be a $14,000 cap per family, and the credits would adjust following inflation. Credits would be phased out for earners making over $75,000 per year or $150,000 for joint filers.
Beginning in 2020, the AHCA would repeal the small business tax credit, and between 2018 and 2020, the credit would no longer be available for a qualified health plan that provides coverage relating to elective abortions.
Improvements to Health Savings Account (HSAs)
HSAs are national income-tax exempt savings accounts tied to high-deductible health plans (HDHP). They are used to pay for certain medical costs such as deductibles and copayments. To encourage the use of HSAs, the American Health Care Act would:
- Increase the maximum HSA contribution limit from $3,400 for self- only coverage and $6,750 for family coverage to $6,550 for self-only coverage and $13,100 for family coverage.
- Allow both married individuals to make catch-up contributions to the same HSA, beginning in 2018. The rule only takes effect if both spouses are eligible for catch-up contributions and one of them has family coverage.
- In 2018, if an HSA is created no more than 60 days after an individual’s HDHP coverage commences, the HSA funds are eligible for use to pay expenses incurred beginning on the date of the HDHP coverage.
Lowering ACA Tax Provisions
The AHCA would mitigate many of the ACA tax provisions and fees including:
- The AHCA would push back the 40% excise tax on high-cost employer-sponsored health coverage until after Dec. 31, 2024.
- Beginning in 2018, the AHCA would amend the ACA law prohibiting purchasing over-the-counter medications with funds in an HSA account.
- The new law would lower the tax rate applied to withdraws from HSA accounts for nonqualified medical expenses. It would return the tax to pre-ACA percentages, effective after Dec. 31, 2017.
- The new law would repeal the $2,500.00 cap placed on health FSA contributions for taxable years beginning after Dec. 31, 2017.
- The new law would repeal the additional 0.9% Medicare tax applied to the wages, compensation and self-employment income of high-income earners beginning in 2018.
- Effective in 2018, the new AHCA would reinstate the business-expense deduction tax for retiree prescription drug costs without reduction by the amount of federal assistance.
- The new law would repeal the excise tax on the sale of specific medical devices, the annual health insurance providers fee, the annual fee on certain brand pharmaceutical companies, the 10% sales tax on indoor tanning services, and it would restore the medical expense deduction income threshold to pre-ACA levels in 2018.
The AHCA would repeal Medicaid expansion and provide enhanced federal payments to states that already expanded their Medicaid programs. In 2020, the AHCA would transition Medicaid’s financing to a “per capita allotment” model, and impose per-enrollee limits on federal payments to states.
The legislation would also improve Medicaid’s data and reporting methods, repeal the ACA’s disproportionate share hospital (DSH) cuts and make adjustments to the system for acceptability qualifications.
This summary serves as a brief overview of the latest on the ACA repeal and its AHCA replacement.
High Ridge Insurance Services will continue to post updates on the latest legislation changes and guidance affecting employers, benefits, and related legal and compliance issues. For further information or inquiries, please visit our contact page to reach us directly.