After weeks of “will they or won’t they” that rivals some of the great TV sitcom near romances for suspense (even though it was considerably shorter), House Republicans passed the American Health Care Act (“AHCA”) just before going on recess (more information on the bill here and here). As with the version that was released in early March, this is designed to meet the Republicans’ promise to “repeal and replace” the ACA. As before, in many respects, the AHCA is less “repeal and replace” and more “retool and repurpose,” but there are some significant changes that could affect employers, if this bill becomes law as-is.
Below is a brief summary of the most important points (many of which may look familiar from our prior post on the original iteration of the AHCA . Where we did not make any substantive changes from our prior post, we have indicated those with the words “No change”):
- Employer Mandate, We Hardly Knew You (No change). The ACA employer play or pay mandate is repealed retroactive to January 1, 2016, so if you didn’t offer coverage to your full-time employees, then this is the equivalent of the Monopoly “Get out of Jail Free” card.
- OTC Reimbursements Allowed from HSAs and FSAs, Without a Prescription (No change). This goes back to the old rules that allowed these reimbursements. This would begin in 2018.
- Reduction in HSA Penalty (No change). One of the pay-fors for the ACA was an increase in the penalty for non-health expense distributions from HSAs from 10% to 20%. The AHCA takes it back to 10% starting in 2018.
- Unlimited FSAs Are (or Would Be) Here Again (No change). AHCA repeals the $2,500 (as adjusted) limit on health FSA contributions starting in 2018.
- Medicare Part D Subsidy Expenses Would Be Deductible Again (No change). The ACA still allowed Medicare Part D subsidies to be excluded from a company’s income, but denied the deduction, for tax purposes, for any expenses that were subsidized. This reinstates the prior law that allowed a “double tax benefit” of both the exclusion of the subsidy from income and the deduction for the costs funded by the subsidy starting in 2018.
- A New COBRA Subsidy (No change). The AHCA does away with ACA’s income-based subsidies in favor of age-based subsidies from $2,000 to $4,000 per individual per year (with a max of $14,000 for a family) with a phaseout for incomes over $75,000 per year ($150,000 for married filing jointly). However, unlike the ACA subsidies (which could only be used for individual market insurance), the new subsidies would also be available for unsubsidized COBRA coverage. This would not kick in until 2020. The subsidies are adjusted based on the CPI+1, which means they are probably unlikely to keep pace with medical inflation. Additionally, any excess subsidy (which seems unlikely) would be put into an HSA for the individual’s benefit.
- Trading in The Cadillac Tax for a Newer Model Year (No change). Hearing the outcry of employers who did not want their health benefits taxed, the bill instead kicks the Cadillac Tax down the road. Instead of applying in 2020, it now applies in 2025. There is no adjustment to the thresholds in this bill, so it will still pick up coverage that is not all that “Cadillac” (despite its name). Despite being highly unpopular, the Cadillac Tax has basically survived.
- HSA Enhancements (1 change). The HSA contribution limits would be increased effective in 2018 so that they are the same as the out of pocket maximums that apply to HSAs (currently $6,550 for self-only coverage and $13,100 for family coverage). Additionally, expenses incurred up to 60 days before the account is established could be reimbursed from the account. This version of the bill would also allow both spouses to make HSA catch-up contributions to the same HSA.
- Continuous Coverage Requirement (Minor Changes). In lieu of the individual mandate, the law would require individuals to maintain continuous coverage (with no more than a 63-day break in the twelve months prior to enrollment). If they did not, then insurance companies could assess a 30% enrollment surcharge above their regular premium through the end of the year in which they enroll. This is designed to encourage individuals to stay in the insurance market. Employers will recognize the 63-day break rule from the old HIPAA creditable coverage rules. This is basically the same concept, only applied across both employer plans and the individual market (the HIPAA rules did not apply to the individual market). And unlike the HIPAA rules, the penalty here is a 30% premium increase, whereas under the HIPAA rules, pre-existing conditions could be excluded for a period of time if the individual did not maintain creditable coverage. For employers, this will probably mean a return to having to issue creditable coverage certificates.
- No More Small Business Health Care Tax Credit. This would be eliminated starting in 2020. The tax credit was limited to ACA SHOP coverage and could only be claimed for two consecutive years.
- Elimination of Additional Medicare Tax. The ACA added an additional 0.9% tax on wages above certain thresholds ostensibly to fund Medicare (although, given the way Congress budgets, it could theoretically have been used for anything). AHCA takes this tax away beginning in 2018.
- Not so Essential Health Benefits. The AHCA allows states to seek a waiver of the current essential health benefits requirement to establish their own set of essential health benefits. For small group plans, this would mean a change in what they have to cover, if the state in which the insurance is issued obtains a waiver. For large group plans and particularly self-insured plans, it is unclear what impact this will have. While those plans are not required to cover essential health benefits, they cannot impose annual or lifetime limits on those benefits. As a practical matter, most plans simply don’t have these limits on nearly all benefits to avoid confusing participants and complicating administration. However, if a state obtains a waiver, its list of EHBs may be so small that some employers could consider changing their plan designs.
The AHCA would make many other changes that are beyond the scope of this post, but these are the ones that are most likely to impact on employers or their plans. Notably, the employer reporting requirement is not removed by this bill, so that will continue to be a compliance obligation.
The open question is whether this bill will make it through the Senate. It passed the House 217-213, which was one more than the bare minimum needed to achieve a majority (with certain House seats currently empty). In the Senate, the margin is even thinner with Republicans holding a 51-49 majority and Vice President Pence holding a tie-breaking vote in the event of a 50-50 split. Some key Republican Senators are also reportedly saying they will start with a clean slate, which means more negotiation and potential for talks within the Senate or in conference between the Senate and the House to stall. At the present time, no Democratic support is expected in the Senate.