On May 4, 2017, the U.S. House of Representatives narrowly approved a revised version of the American Health Care Act (“AHCA”), a bill that both repeals certain parts of the Affordable Care Act (“ACA”) and provides new provisions that would significantly change how individuals and employers pay for and receive health insurance. The final bill, much like the original version summarized here, would repeal the employer and individual mandate penalties and eliminate many of the ACA’s tax provisions, among several other significant changes.
In order to get the bill through the House, several key provisions were added to or modified from the original version of the AHCA, including:
- Pre-existing Conditions: Under the ACA, health plans (insured or otherwise) are prohibited from imposing pre-existing condition exclusions. The ACA’s individual mandate (which is essentially eliminated under the AHCA) was intended to offset the insurance market effects of the pre-existing condition ban, by forcing healthy individuals to purchase insurance. Under the AHCA, strict pre-existing condition exclusions would continue to be prohibited, but insurers could impose a 30% premium surcharge for 12 months on any individual who has a coverage gap of 63 days during the preceding 12 months. This surcharge would not be needed, however, in states that obtain an outright waiver from the ban on health status underwriting, as discussed below.
- Health Status Underwriting: Under the ACA, insurers are prohibited from using health status or pre-existing conditions as a factor when setting prices (underwriting) in the individual market. Under the AHCA, however, states can apply to the Department of Health and Human Services (“HHS”) for a waiver of the ACA’s ban on using health status for underwriting purposes for individuals who have a gap in coverage of at least 63 continuous days during the preceding 12 months. This waiver opportunity would effectively allow insurers to impose pre-existing condition exclusions in waiver states, by allowing insurers to impose significantly higher pricing on individuals with pre-existing conditions or other adverse health status.
- Essential Health Benefit Requirement for Insured Plans: Under the ACA, individual and small group employer insured plans must provide coverage for a package of ten “essential health benefits.” Under the AHCA, states can apply to HHS for a waiver of the essential health benefits requirement. In addition to being able to offer plans that provide less extensive coverage, this waiver option may also allow insurers (and possibly employers with insured plans) to apply annual limits, lifetime limits, or no out-of-pocket expense limits on essential health benefits, three features that are currently prohibited under the ACA.
- Age Weighted Underwriting: The ACA limits insurers’ ability to underwrite for an individual’s age by 3:1 (said another way, an insurer can increase an individual’s premium by only three times based on the individual’s age). Under the AHCA, states can apply to HHS for a waiver of this age rating limit, and can seek an age-based underwriting limit of up to 5:1, allowing insurers to increase premium cost by a greater extent based solely on an insured individual’s age.
As nearly every news outlet has been reporting, there is an extremely low likelihood that the AHCA will become law in its current form. The bill still needs to be approved by the Senate, which would need to happen through the budget reconciliation process. It is not yet certain whether the Senate would be permitted to pass the AHCA by a simple majority through budget reconciliation, as it is not clear that all provisions of the bill directly impact the budget. And there are several key Republican Senators that have either publicly criticized the AHCA in its current form or said that they intend to draft their own ACA repeal bill(s).
In addition to the recent changes listed above, the AHCA makes several other significant changes to the ACA that would affect health coverage both in the individual and group (e.g. employer) markets:
- Repeals the penalties associated with the individual and employer mandates effective as of January 1, 2016;
- Delays the tax on high cost health coverage (the “Cadillac Tax”) to 2026;
- Retains the Affordable Care Act’s employer information reporting requirements in some form;
- Increases the annual tax free contribution limit to health savings accounts (“HSAs”) to $6,550 (self-only coverage) and $13,100 (family coverage);
- Repeals the $2,500 annual limit on contributions to health flexible spending accounts (FSAs);
- Repeals most of the Affordable Care Act’s tax provisions including the health insurance tax and the Medicare payroll tax surcharge on high income employees;
- Makes major changes to the Medicaid program, including the ACA’s expansion of Medicaid.
What This Means for Employers and Plan Sponsors
The House’s approval of the AHCA makes it more likely that the AHCA or some other ACA repeal legislation may be passed in the relatively short term. Employers and plan sponsors, specifically those with low wage participant populations or large numbers of part-time or contingent employees, should become familiar with the AHCA provisions that most directly impact group health plans. And employers engaged in collective bargaining should think strategically about adding labor contract provisions that address the possible impact of ACA repeal legislation like the AHCA.