On June 22, 2017, the Senate released its much anticipated health care reform legislation – the Better Care Reconciliation Act (“BCRA”) (linked to amended version released June 26, 2017). In many respects the BCRA is similar to the House of Representatives’ American Health Care Act (which was described in our March 9, 2017 and May 4, 2017 blog entries). However, the BCRA differs from the AHCA in several important respects.

As of the date of this blog entry, the BCRA does not have sufficient support to pass a vote in the Senate and House GOP members have indicated that they would reject the bill. Therefore, Senate leadership has delayed a vote on the BCRA until after the July 4th holiday recess. Nevertheless, as we provided for the AHCA, below are key takeaways for employers and plan sponsors and a few comparisons between the AHCA and BCRA. A more detailed comparison between key provisions of the Affordable Care Act (“ACA”), the AHCA, and the BCRA is provided at the end of this blog.

1. Individual and Employer Mandates. Like the AHCA, the BCRA would essentially repeal the ACA’s individual and employer mandates effective after December 31, 2015. Both bills do this by “zeroing-out” the penalties for not having minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate). Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era

In the absence of an individual mandate, the AHCA and BCRA have different methods of incentivizing individuals to maintain continuous health coverage. Under the AHCA method, insurance carriers would be required to charge a 30% premium surcharge to those who fail to have continuous coverage (i.e., a break in coverage of 63 days or more would trigger the surcharge). The BCRA would require insurance carriers to apply a 6-month blanket coverage waiting period to any individual with a 63-day or more break in continuous coverage during the prior 12 months.

Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era.

2. BCRA Retains ACA’s Subsidy and Tax Credit Program. The Senate appears to have rejected AHCA’s elimination of cost-sharing subsidies and premium tax credits available only for coverage purchased on the Marketplace. The AHCA would have replaced the ACA’s program with an advance tax credit program available to individuals purchasing individual market insurance (not just Marketplace coverage) or enrolled in unsubsidized COBRA coverage. Under the AHCA, the amount of the tax credit would be based on age and would be available only to individuals with income less than $75,000 (individual) or $150,000 (jointly with a spouse).

The BCRA, however, maintains the ACA’s cost-sharing subsidies and premium tax credit program, albeit with some modifications. Under the BCRA, cost-sharing subsidies and premium assistance would be determined based on age, with younger individuals getting more assistance than older individuals, and income. Household income in excess of 350% of the federal poverty line would disqualify an individual from cost-sharing subsidies and premium assistance, in contrast to the ACA’s 400% threshold. Additionally, under the BCRA, the premium tax credit would be based on a benchmark plan that pays 58% of the cost of covered services (in contrast to the ACA’s use of the second-lowest cost silver (70%) plan). This lower value of coverage effectively reduces the amount of premium assistance an individual can get.

3. Employer Reporting Obligations to Continue. Although the individual and employer mandates would be repealed, it is likely that the ACA reporting obligations (Forms 1094-B/C and 1095-B/C) would remain in place, at least in some forms. As noted above, the BCRA retains the ACA’s cost-sharing subsidies and premium assistance, the availability of which is conditioned on an individual not being enrolled in employer-sponsored coverage. Therefore, the IRS would likely still need to obtain coverage information from employers.

4. Cadillac Tax Repealed Subject to Reinstatement. Like the AHCA, the BCRA effectively delays the so-called Cadillac Tax until 2025. The Cadillac Tax was originally slated to be effective in 2018, but it was delayed until 2020 in prior budget legislation.

5. Most ACA-Related Taxes Repealed. The BCRA would also repeal most of the tax reforms established under the ACA. Most relevant to employers and plan sponsors would be the elimination of the contribution limit on health flexible spending accounts (HFSAs), the ability reimburse over-the-counter costs under HFSAs and health savings accounts (HSAs), the increase in HSA contribution limits, and elimination of the Medicare surcharge applied to high-earners.

6. Popular ACA Reforms Remain. As was the case under the AHCA, the BCRA would keep many popular ACA market reforms and patient protections in place. These include:

• The requirement to cover dependent children until age 26;

• The prohibition on waiting periods in excess of 90 days;

• The requirement for individual and small group plans to cover essential health benefits;

• The prohibition against lifetime or annual dollar limits on essential health benefits;

• The annual cap on out-of-pocket expenditures on essential health benefits;

• Uniform coverage of emergency room services for in-network and out-of-network visits;

• Required first-dollar coverage of preventive health services;

• The prohibition of preexisting condition exclusions;

• Enhanced claims and appeals provisions; and

• Provider nondiscrimination.

7. ERISA Preemption for “Small Business Health Plans.” The BCRA would add a new Part 8 to ERISA for “small business health plans.” Currently, some states have enacted insurance laws that prohibit small employers from risk-pooling their employees in a single, large group insurance plan. New Part 8 of ERISA would preempt these state laws and allow the formation of “small business health plans,” which, generally, are plans sponsored by an association on behalf of its employer members. Small business health plans must meet certain organizational and financial control requirements and apply to the Department of Labor for certification.

8. Employee Tax Exclusion Remains Intact. Like the AHCA, the BCRA does not currently include a limitation on the employee tax exclusion that would result in imputed taxes to employees if the value of health coverage exceeds a certain amount. This absence, however, does not necessarily mean that such a limit will not eventually be imposed. It is possible that Congress will consider limiting tax incentives for both retirement and health and welfare plans when broader tax reform is considered.

9. HFSA/HSA Expansion. As mentioned above, the BCRA includes the same modifications to the HFSA and HSA rules as the AHCA. The BCRA would remove the annual contribution cap on HFSAs. Additionally, HFSAs and HSAs would now be able to reimburse on a non-taxable basis over-the-counter medication without a prescription. The annual contribution limit to HSAs would be equal to the out-of-pocket statutory maximum for high-deductible health plans. Spouses would both be able to make catch-up contributions to the same HSA.

It is still too early to tell whether the BCRA will fare better than the AHCA. In any event, we will continue to monitor legislative efforts and will provide updates as substantive developments occur.

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