HR Management & Compliance

ACA repeal proposal: Employer mandate gone, Cadillac tax remains

On March 6, House Ways and Means Committee Chairman Representative Kevin Brady (R-TX) released long-awaited proposed legislation to repeal and replace the Affordable Care Act (ACA) through a budget process known as reconciliation—a process that allows legislation to be passed with a simple majority in the Senate. The legislation is part of House Republicans’ American Health Care Act.

Employer and individual mandates gone . . . retroactively

Both the employer mandate and the individual mandate would be nullified under the new proposal, which would remove the penalties associated with not having (or, in employers’ case, not providing) minimum essential coverage.

The penalties would be removed retroactively to January 1, 2016, which is meant to provide relief to individuals and employers affected by the penalties in 2016. How that would play out in practice, however, is not yet fully clear.

Additionally, while the proposal calls for simplified reporting of offers of coverage on W-2s by employers, that change cannot be made through the reconciliation process. However, according to Brady’s press release, “When the current reporting becomes redundant and [is] replaced by the reporting mechanism called for in the bill, then the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes.”

Cadillac tax intact but pushed back

While there had been talk of capping the long-standing tax exclusion for employer-provided health insurance—which would have shifted costs to individuals rather than employers—there is no such cap in the current proposal.

Instead, the bill leaves in place the widely unpopular Cadillac tax but delays its implementation to January 1, 2025. The effective date had already been pushed back once under President Barack Obama from January 1, 2018, to January 1, 2020.

Additional provisions from taxes to tanning

Additional provisions in the proposal include:

  • Individuals, regardless of income, would be required to repay excess premium tax credits for tax years 2018 and 2019.
  • Starting in 2020, the ACA’s premium tax credit would be repealed. In the meantime, premium tax credits would be available for the purchase of stripped-down “catastrophic-only” health plans and certain qualified plans not offered through an exchange. Premium tax credits could not be used to purchase plans that offer elective abortion coverage. The schedule used to determine an individual’s or a family’s share of premiums would be revised to adjust for household income and individual ages.
  • Starting in 2020, the small business tax credit would be repealed. Between 2018 and 2020, the small business tax credit generally would not be available for qualified health plans that offer elective abortion coverage.
  • The ACA removed over-the-counter medications from the list of qualified medical expenses that could be covered with health savings accounts (HSAs). Under the proposal, that restriction would be lifted starting with tax year 2018.
  • The tax on HSA and Archer medical savings account distributions not used for qualified medical expenses would be reduced to pre-ACA percentages starting with distributions made after December 31, 2017.
  • The limit on the amount an individual or employer may contribute to a flexible spending account—approximately $2,500 annually, indexed for cost-of-living adjustments—would be removed for taxable years starting after December 31, 2017.
  • The ACA’s 2.3% excise tax on the sale of certain medical devices would be repealed starting January 1, 2018.
  • The pre-ACA business-expense deduction for retiree prescription drug costs, without reduction by the amount of a federal subsidy, would be reinstated starting with taxable years beginning after December 31, 2017.
  • The pre-ACA threshold for itemized deductions of medical expenses exceeding 7.5% of a taxpayer’s adjusted gross income would be reinstated for taxpayers 65 and older starting in 2017 and for all other taxpayers starting in 2018.
  • The additional .9% income-based Medicare tax would be repealed starting in 2018.
  • An advanceable, refundable tax credit for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage would be created for individuals without employer-provided insurance or access to government health insurance programs. The credits would be adjusted by age, ranging from $2,000 for individuals under 30 to $4,000 for people over 60. The credits would be phased out for income levels starting at $75,000 annually ($150,000 for joint filers). Family credits would be capped at $14,000.
  • Starting in 2018, the limit on annual HSA contributions would be increased to equal a maximum of the sum of the annual deductible and out-of-pocket expenses permitted under a high-deductible health plan. Therefore, the basic limit would be at least $6,550 for self-only coverage and $13,100 for family coverage.
  • Starting in 2018, both spouses would be allowed to make catch-up contributions to one HSA.
  • Starting in 2018, if an HSA is established during the 60-day period beginning on the date an individual’s coverage under a high-deductible health plan begins, the HSA will be treated as having been established on the date coverage begins for purposes of determining whether an expense is a qualified medical expense.
  • The ACA-imposed tax of 3.8% on some net investment income of individuals, estates, and trusts with income above certain amounts would be repealed starting in 2018.
  • Generally, employers would be able to deduct remuneration paid to employees as “ordinary and necessary” business expenses. The ACA added a limitation for certain health insurance providers that pay wages exceeding $500,000 to an officer, director, or employee. The proposal would remove the limitation starting in 2018.
  • The ACA-imposed annual fees on certain health insurers and pharmaceutical manufacturers would cease to apply starting in 2018.
  • Last but not least, the proposal would repeal the ACA-imposed 10% sales tax on indoor tanning services starting in 2018.

Medicaid expansion halted

The House Energy and Commerce Committee, chaired by Representative Greg Walden (R-OR), released concurrent proposed legislation that would, among other things:

  • Create a patient and state stability fund designed to assist high-risk individuals;
  • Repeal states’ option to extend Medicaid coverage to adults above 133% of the federal poverty level by December 31, 2019, while grandfathering in current enrollees;
  • Create a per-capita Medicaid funding formula for states;
  • Increase the permissible age variation in health insurance premium rates from three-to-one to five-to-one; and
  • Impose penalties for applicants looking to reenroll in health coverage after coverage lapses of longer than 63 days.

Additional information is available here.

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