Two House of Representatives Committees have each released separate budget proposals that, after review and mark-up, will form the American Health Care Act (“AHCA”), the first in a series of legislation that is intended to replace the Affordable Care Act (the “ACA”). The two House Committee bills repeal many of the taxes imposed under the ACA and significantly change the ACA’s revisions to the Medicaid program and its funding. Below are highlights from the legislation that impact employer-sponsored group health plans:
Employer and Individual Mandate Penalties. The AHCA essentially repeals the ACA’s Employer Shared Responsibility Penalty (i.e., the “Employer Mandate” Penalty) and the Individual Shared Responsibility Penalty (i.e., the “Individual Mandate Penalty”) by reducing the respective penalties to $0, retroactively to January 1, 2016.
Tax Credits. The AHCA would replace the ACA’s income-based group health premium tax subsidies with advanceable, refundable tax credits to purchase either health insurance coverage offered through a state’s health insurance marketplace or unsubsidized COBRA coverage under an insured employer’s group health policy. The credit increases from $2,000 to $4,000 based on age and phases out after the taxpayer’s adjusted gross income exceeds $75,000 ($150,000 for joint filings). Coverage purchased with the credits must meet criteria that differ from the ACA requirements.
Employer Reporting. The AHCA does not modify the ACA-imposed employer reporting requirements under Internal Revenue Code Sections 6055 and 6056. This means, as of now, employers must continue with their efforts to satisfy their ACA reporting obligations (i.e., Forms 1094/B-C and 1095/B-C).
Limits on Health Flexible Spending Account (“Health FSA”). The AHCA removes the ACA’s annual cap on employee pre-tax contributions to Health FSAs (currently $2,600 for 2017). The AHCA also re-authorizes pre-tax reimbursements for certain medical expenses (e.g., over-the-counter medications). The proposed effective date for these modifications is January 1, 2018.
Health Savings Accounts (“HSAs”). The AHCA modifies the tax rules related to HSA contributions and reimbursements as follows:
- Increases the annual contribution limit to equal the IRS’s HDHP annual out-of-pocket limits (for 2017, $6,550 for self-only coverage and $13,100 for family coverage). The ACA currently limits annual HSA pre-tax contributions to $3,400 for self-only coverage and $6,750 for family coverage.
- Authorizes HSA-eligible spouses who are over age 55 to make an additional $1,000 “catch up” contribution to the same HSA. Current law requires qualifying, HSA-eligible spouses to each make catch up contributions to a separate HSA.
- Reduces the ACA’s tax on impermissible HSA distributions to 10%.
The proposed effective date for these changes is January 1, 2018.
ACA Provisions Unaffected by AHCA. The AHCA does not affect the following ACA provisions that impact the coverage provided by group health plans:
- Prohibition on annual and lifetime dollar limits on essential health benefits.
- Prohibition on pre-existing condition exclusions.
- Prohibition on “excessive” waiting periods.
- Requirement to cover in-network, preventive services at no cost.
- Requirement to offer coverage to dependent children to age 26.
- Limits on the maximum out-of-pocket expenses for in-network services.
- Claims and appeal procedures.
- Retroactive rescissions of coverage.
- Minimum coverage and nondiscrimination requirements applicable to insured group health plans.
Note: The AHCA only addresses ACA items that are considered “budget related” and, therefore, cannot be filibustered. Other parts of the agenda to amend and replace the ACA will involve future non-budget item legislation, which will need 60 votes to survive a filibuster in the Senate.