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 Instead of completely dismantling former President Barack Obama’s landmark legislation, the AHCA repealed former’s mandates and funding sources (i.e. taxes), and focuses on expanding health insurance options for those that felt that their choices were limited.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summary in each area below under the headings Repealed, Replaced, and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- Repealed: Individuals will no longer be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- Repealed: Small Group and Individual market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Nearly all taxes from the ACA will be repealed.
- Repealed: 14 out of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.