On Monday, the GOP introduced the highly anticipated American Health Care Act (AHCA). Instead of completely dismantling former President Barack Obama’s landmark legislation, the AHCA repealed former’s mandates and funding sources (i.e. taxes), and focuses on expanding health insurance options for those that felt that their choices were limited.
Below is a summary of the central ideas of the AHCA. While positioned as a “Repeal and Replace” effort, the proposed law does leave certain aspects of the Affordable Care Act untouched. We capture the summary in each area below under the headings Repealed, Replaced, and Remains.
Say goodbye to the mandates
- Repealed: Individuals will no longer be required to buy an insurance policy, and employers (with over 50 full-time equivalent employees) are no longer mandated to offer affordable coverage, that meets minimum value.
- Replaced: “Continuous Coverage” is required to receive standard market premiums. Individuals who forego health insurance for greater than 63 days can be charged up to a 30% increase to their premiums for a period of up to 12 months.
- Remains: Nothing remains of these major components to the ACA - providing significant relief to employers in their tracking and administration of the Section 4980H requirements.
Product enhancements, market stabilization, and consumer coverage protections.
- Repealed: Small Group and Individual market products will sunset the actuarial-value defined “metal tiers”, effective December 31, 2019. This would mark the end of the Bronze, Silver, Gold, and Platinum plan design designations.
- Replaced: Age rated premium caps for individual and small group premiums will be increased from 3:1 to 5:1. A $100 billion fund will be created and dispersed over a decade to help states stabilize insurance markets, maintain preventative services, and pay for those in high-risk pools.
- Remains: Essential Health Benefits, as defined in the ACA, remain mandatory for all individual and small group plans. Caps on deductibles and out of pocket limits also were left intact. Pre-existing conditions still have to be covered by insurers. Dependents can still remain on their parents’ policy until the age of 26. Caps and guidance on insurer premium rating factors - such geographic boundaries (community rating areas), age band structures, and tobacco use permitted adjustments, have not been changed.
Nearly all taxes from the ACA will be repealed.
- Repealed: 14 out of the 21 taxes that the ACA introduced will be walked back. PCORI and Reinsurance Fees. Net Investment Income Tax. Medical Device Excise Tax. Additional Medicare Tax. Branded Prescription Drug Manufacturers and Importers Tax. Health Insurance Providers Tax. Indoor Tanning Services Tax.
- Replaced: No new taxes were introduced. Households will also now be able to deduct medical expenses over 7.5% of their income (back to the levels in place prior to the 10% introduced by ACA).
- Remains: The ACA’s high-cost plan tax (HCPT), known to many as the “Cadillac Tax,” is a 40% tax on employer plans which exceed $10,200 in premiums (a year) for individuals and $27,500 for families. Many groups and lobbies were against this tax, and it has become a common punching bag from both sides of the aisle. It was scheduled to take effect in 2020. Despite aggressive lobbying efforts from industry organizations in the last 60-90 days, the AHCA did not remove this tax. Rather, it extended the effective date to January 1, 2025.
Favorable Treatment to Account Based Health Plans
- Repealed: The annual FSA contribution limit of $2,500 is removed.
- Replaced: HSA early distribution penalty tax will be lowered from 20% to 10% (pre-ACA rate). Furthermore, the maximum contribution limit for HSAs will be increased to match the deductible and out-of-pocket limits. This means that the basic limit to contribute tax-free will be $6,550 / year for individuals and $13,100 for families. Spouses will now be allowed to contribute catch-up contributions to HSAs. Over-the-counter medications can also be purchased pre-tax with HSA dollars.
- Remains: There was little in the ACA to support and strengthen Account Based Health Plans (ABHP). The GOP has taken the opportunity with the AHCA to promote and strengthen these options - a welcome advantage for employers offering these plan structures.
Reporting and Administration
- Repealed: Reconciliation rules limit the ability of Congress to repeal current reporting requirements. The proposed regulations call for the Secretary of the Treasury to “phase out” old reporting, as new reporting takes effect.
- Replaced: Eligibility for employer sponsored insurance will remain a determining factor in tax credit eligibility. Therefore, it is possible the IRS will still require forms 1094/1095 - though with modifications to the form and format. However, according to the Ways And Means Chairman Rep. Kevin Brady (R-Texas) they are calling for a “simplified reporting of an offer of coverage on the W-2 by employers.” This is not a legislative mandate - rather, instructions to relevant Department heads.
- Remains: At this point, the requirement for plan sponsors and issuers to furnish a Summary of Benefits and Coverage (SBC) appears to remains in place.