What are proposed Changes

House GOP Leadership Releases ACA Repeal and Replace Plan

Issue: Health Reform

Date: March 7, 2017

Action Taken:  Late yesterday, the House Energy & Commerce and Ways & Means Committees released the GOP plan – the American Health Care Act – to repeal and replace the Affordable Care Act (ACA). Both committees plan to mark-up (finalize) the provisions of the plan that are within each committee’s jurisdiction. Both mark-ups begin Wednesday, March 8, and are expected to take considerable time to complete. However, both committees vow to finish their work before the end of the week. After that the plan will go to the House for a vote, and then to the Senate. Controversy is expected at each step of the process.

As released on March 6, and subject to amendment during mark-up, House floor debate, and in the Senate, the plan would do the following:

Individual and employer mandates: The plan would reduce to zero the penalties for failure to comply with the ACA’s mandates. In the case of employers, this means that the law will continue to require that most employers offer affordable, qualified (i.e., containing statutorily-required minimum essential benefits) health insurance to all full-time (defined as 30-hours/week of work) workers or pay an assessment. But assessments are reduced to zero. Thus, this is a functional if not actual repeal of the employer mandate. The plan also gives authority to Treasury to modify the mandate’s reporting requirements to reflect the zero penalty, yet  still collect necessary information to verify if an employee was offered an employer-sponsored plan to determine whether an individual can qualify for the new tax credits).

In the case of individuals, the law would still require them to carry qualified health insurance, but the assessment for failure to do so is reduced to zero. So, there would be no penalty (assessment) if a person chooses not to buy health insurance.

Insurance reforms: Some of the ACA’s insurance reforms are not repealed.  The House GOP plan would preserve the following ACA provisions:

  • The ban on the use of preexisting conditions,
  • The annual and lifetime benefits caps ban, authority to keep adult children up to age 26 on a parent’s plan, and
  • The Medical Loss Ratio (MLR) requirement that insurance companies spend at least 80 percent or 85 percent of their premium revenue on medical expenses.  Agent compensation is not excluded from the MLR calculation

Confused? Call Thomas & Associates

However, the House GOP plan repeals or significantly modifies other ACA provisions:

  • Minimum essential benefits: The plan repeals the ACA’s bronze, silver, gold and platinum benefit levels (essentially repealing the minimum essential benefits standard).
  • Continuous coverage: The plan requires health insurers to add a 30 percent surcharge to the premium paid by individual insureds when those insureds cannot show that they have maintained coverage continuously (i.e., that there was no period lasting more than 63 days that they were without coverage). The continuous coverage requirement renews annually; i.e., after a year of paying premiums with the 30 percent surcharge, an insured could get out from under paying that surcharge by showing he/she has maintained continuous coverage for the previous year.
  • Age-rating: The plan changes the ACA’s rules regarding use of age as a factor in insurance premium pricing—instead of the ACA’s three age bands, five would be allowed.  Plus, the plan authorizes the States to set their own age bands for premiums.

Taxes: The plan repeals all but one of the ACA’s taxes. And notably, in its current form it does not include a tax cap on employer-provided health insurance. Earlier versions of the plan had included a proposal to tax employees on the amount their employers paid for their health insurance to the extent that the premiums exceed 90 percent of the national average.

The one ACA tax that stays on the books is the Cadillac tax—the tax that requires insurers (or self-insured plans) to pay a 40 percent tax on the amount by which premiums on their employer-provided health insurance exceeds statutory maximums (generally, that would be a 40 percent tax on individual premiums over $10,200/year and $27,500 for family coverage). Currently, the Cadillac tax is set to take effect in 2020; this plan defers the effective date of the Cadillac tax to 2025.

Among the taxes that are repealed are:

  • The 3.8 percent tax imposed on high-income taxpayers on their investment income, starting in 2018.
  • The 0.9 percent Medicare tax imposed on high-income taxpayers, beginning in 2018.
  • The premium tax credit, as of 2020.
  • The small business tax credit (as of 2020)—and between 2018 and 2020, the small business tax credit would not be available for plans that provide coverage of elective abortions.
  • The “tax on over-the-counter (OTC) medications”—this refers to the repeal of the ACA’s exclusion of OTC medicines from the definition of qualified medical expenses that could be paid with health savings account (HSA) funds. This is effective as of 2018.
  • The penalty tax for use of HSA or Archer Medical Savings Account (MSA) funds for nonqualified medical expenses goes back to 10 percent from the ACA’s 20 percent level, as of 2018.
  • The ACA’s imposition of a $2,500 limit on contributions to a flexible spending arrangement (FSA), which this official explanatory Ways & Means-prepared document refers to as a tax, would be repealed, as of 2018.
  • Restores the threshold for deductibility of unreimbursed medical expenses from the ACA’s 10 percent to the pre-ACA level of 7.5 percent of adjusted gross income (AGI), as of 2018. (It also extends the special rule for taxpayers over age 65 for 2017.)
  • The health insurance tax—a special annual tax on health insurers, as of 2018.
  • The medical device tax and tanning tax.

HSA Expansion: The plan increases HSA contribution limits to an amount equal to the maximum of the sum of the annual deductible and out-of-pocket expense limits permitted by a high deductible health plan (HDHP). So, for 2018, that would mean an annual HSA contribution limit of $6,550 for an individual or $13,100 for a family. Plus, the plan would allow both spouses to make catch-up contributions to one HSA, also as of 2018.

Subsidies: This plan repeals the ACA’s premium tax credit subsidy structure. Instead, it proposes tax credits for individuals who do not have an offer of health insurance from their employers, or access to a government health insurance program. The tax credits are age-weighted, and income limited. They are advanced or refundable (i.e., they are available prior to year-end and to taxpayers whose tax liability is less than the amount of the tax credit).

  • The tax credits are $2,000 for those under age 30
  • $2,500 those between 30 and 39
  • $3,000 those between 40 and 49
  • $3,500 for those between 50 and 59
  • $4,000 for those over age 60

The tax credits are per person and capped (for a family) at an aggregate of $14,000. They are indexed for inflation. They begin to phase out at AGI of $75,000 (individual) or $150,000 (family). The phase out rate is $100 for every $1,000 in income above the initial phase-out level.

Medicaid expansion: The American Health Care Act repeals the Medicaid expansion program in the ACA as of January 1, 2020 and replaces it with federal funds (“state innovation grants”) that allow states flexibility on how to provide health care for their under-poverty population.

Market stabilization: The plan also includes a number of market stabilization provisions, principally by way of authority to the states to adjust rules to make sure the individual market doesn’t crash as a result of these changes.

Next Steps:  The House Energy & Commerce and Ways and Means Committees will markup the bill on Wednesday and allow Members to consider the policies, offer amendments, and vote on a final product.  The final Energy & Commerce and Ways & Means products will be sent to the Budget Committee to put together and send to the floor for a House vote.