The House Energy and Commerce and Ways and Means Committees introduced two bills on March 6, 2017, collectively entitled the American Health Care Act. The Energy and Commerce bill primarily addresses Medicaid and other state-based program funding issues while the Ways and Means bill focuses on fees and taxes under the Affordable Care Act (“ACA”), insurance subsidies, and other provisions that directly affect employer-provided health coverage.

It’s important to note what these bills are and what they aren’t. The bills do not represent the complete repeal of the ACA or the final word on what the American Health Care Act may look like when finished. These are reconciliation bills intended to repeal and replace portions of the ACA by a simple majority vote in a way that would not be subject to a blocking filibuster in the Senate if brought to a vote. The trade-off is reconciliation bills are limited to making changes to a law (e.g. the ACA) that directly affect the federal budget. As a result, these bills are limited in scope to those ACA provisions that collect revenue through fees or taxes, such as the individual and employer mandates, and ACA provisions that result in federal spending including the Medicaid expansion and insurance subsidies in the public health insurance marketplace. ACA provisions that do not directly involve revenue or spending such as the dependent coverage to age 26 and other health plan design mandates, the essential health benefits rules, and Form 1094/1095 reporting are unaffected.

As drafted, key provisions affecting employer-provided health coverage include:

1. The repeal of the individual mandate – The individual mandate requiring taxpayers to maintain minimum essential coverage or pay a penalty is repealed retroactive to December 31, 2015.

2. The repeal of the employer mandate – The employer mandate subjecting large employers to potential penalties related to offering coverage to full-time employees is repealed retroactive to December 31, 2015.

3. Employer reporting – Beginning in 2020, employers will report employee eligibility for coverage on Form W-2. If not eliminated earlier, the intent is for the Secretary of the Treasury to stop enforcing Form 1094/1095 reporting as redundant and unnecessary in 2020. In the meantime, Form 1094/1095 reporting is still in effect and there are penalties for failing to file.

Note: Also beginning in 2020, health insurers will be required to report information to the IRS about covered individuals who receive subsidies in the form of advance payment credits toward health insurance and provide a similar statement to the covered individuals. This appears limited to individual market coverage and unsubsidized COBRA coverage in fully-insured group health plans. As a result, this future reporting requirement does not appear to be an employer responsibility unless the employer is also the insurance carrier.

4. Tax on high-cost coverage – The ACA’s tax on high-cost coverage (a/k/a the Cadillac Tax) is delayed until 2025. The previously leaked draft of the ACA replacement legislation included a tax on high-cost coverage that shifted the tax burden to employees by capping the tax exclusion for employer-provided coverage, but that tax does not appear in this version. This delay suggests that some sort of replacement may appear in the future but may not be a part of this proposed legislation. The American Health Care Act generally eliminates the revenue raising portions of the ACA while retaining subsidies toward the purchase of health coverage and other spending provisions. It will be interesting to see how the Government Accountability Office scores this draft legislation if left in its current form.

5. Subsidies toward the purchase of coverage – The ACA’s existing subsidy system will generally remain in effect through 2019. Beginning in 2020, subsidies shift to a new advanceable, refundable tax credit. Despite some protests from House Republicans regarding the refundability of these credits, it was viewed as a necessary step because lower income families do not generally owe income tax and would not benefit from a non-refundable credit. The new subsidies are age-based as follows:

Age Bracket

Subsidy Amount

Under age 30

$2,000

30 – 39

$2,500

40 – 49

$3,000

50 – 59

$3,500

Age 60 and over

$4,000

For families, the applicable subsidy is determined using the five oldest individuals and is capped at $14,000. The new subsidy system does not take geographic location into account even though $3,000 will purchase more health insurance in Idaho than in Texas, New York or California. Individuals are ineligible for subsidies if they are eligible for employer-provided group health coverage (affordability and actuarial value will not be relevant) or for certain other specified coverage such as Medicare, Medicaid, CHIP, and TRICARE. If an individual has subsidy amounts left over after the purchase of health coverage, the individual may elect to have the excess deposited in a health savings account. This deposit will not count against the individual’s annual health savings account contribution limit and will obviously require the individual to have enrolled in high-deductible health coverage.

The subsidy amounts also phase out for higher income individuals at the rate of 10 percent of the excess over a modified adjusted gross income of $75,000 ($150,000 for married couples filing joint returns). In other words, a single 35-year-old with a modified adjusted gross income of $100,000 would be ineligible for a subsidy. Married couples who file separate federal income tax returns are ineligible for subsidies, possibly for subsidy administration reasons. Beginning in 2021, the subsidies and phase-out limits are indexed to the consumer price index (CPI) plus 1 percent. CPI has increased by approximately 1.5 percent per year over the past 5 years while health care costs have increased roughly 6.5 percent over that same period. If the increase in health care costs driving insurance premiums is not addressed, it appears the gap between the cost of health insurance coverage and available subsidies will grow quickly.

6. Health Savings Accounts – Beginning in 2018, the maximum annual contribution limits for health savings accounts (HSAs) will increase to the annual statutory out-of-pocket maximum limits for high deductible health plans. The 2018 out-of-pocket limits are not available yet, but the 2017 limits are $6,550 for self-only and $13,100 for family coverage. Individuals will also become able to use their HSAs to reimburse for expenses incurred up to 60 days before the HSA was established but after high deductible health coverage began. Spouses will also be able to make catch-up contributions (currently $1,000 for individuals age 55 or older) to the same HSA assuming both spouses are HSA-eligible. The penalty for reimbursements used for expenses other than qualifying medical expenses by individual under age 65 is reduced from 20 percent back to 10 percent.

7. Health Care Flexible Spending Accounts – The annual employee contribution limit toward a health care flexible spending account (HCFSA) is repealed for taxable years beginning after December 31, 2017. The ACA limit applied to the HCFSA plan year, which may or may not be a taxable year, so a revision to the effective date of this repeal may be necessary.

8. Over-the-Counter Medication – Beginning in 2018, individuals will be able to use their HSAs and HCFSAs to reimburse for purchases of over-the-counter medication without a prescription.