The House Ways and Means and Energy and Commerce Committees have issued draft legislation, the American Health Care Act, to begin the process of repealing and replacing the Affordable Care Act. Both Committees will hold markups on March 8. In the meantime, here are key provisions for employers in the draft bill.

  • The employer mandate would be effectively repealed retroactively (the penalty is reduced to zero).
  • The Cadillac tax would be further delayed until tax years beginning on or after January 1, 2025.
  • Over-the-counter medications could be reimbursed by tax advantaged savings vehicles (HSAs, HRAs and health FSAs) beginning in 2018.
  • The $2,500 (as indexed) limit on contributions to health FSAs would be repealed effective for plan years beginning on or after January 1, 2018.
  • For HSAs, beginning in 2018:
    • The basic contribution limit for HSAs would be increased to at least $6,550 (self-only)/$13,100 (family).
    • Both spouses could make catch-up contributions to one HSA.
    • If an HSA is established during the 60-day period beginning on the date high deductible health plan coverage begins, the HSA would be backdated to that date to determine if expenses are qualified.
    • Distributions from HSAs that are not used for qualified medical expenses are includible in income and subject to an additional tax. The bill would lower the tax rate on distribution penalties after December 31, 2017.
  • The business-expense deduction for retiree prescription drug costs would be reinstated without reduction for any federal subsidy for plan years beginning on or after January 1, 2018.
  • The fact sheet reports that dependents could continue on their parents’ plan until they are age 26.
  • The bill includes an age-weighted tax credit ranging between $2,000 and $4,000 (capped at $14,000 for a family), for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage. The credits would be available in full to those making $75,000 per year ($150,000 for joint filers), phasing out by $100 for every additional $1,000 in income. However, to be eligible an individual must not have access to government health insurance programs or an offer from any employer. In addition, amounts contributed to a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) would reduce the subsidy.
  • The individual mandate would be effectively repealed (the penalty is reduced to zero) retroactively. The replacement would be a “continuous coverage” requirement beginning in 2019 under which an individual who goes longer than 63 days without continuous health coverage will be assessed a flat 30% late enrollment surcharge on top of the base premium for 12 months.

…and the key omissions:

  • The cap on the tax exemption for employer-sponsored health care plans has been dropped. Leaked draft legislation included a cap at the 90th percentile of current premiums, but was subject to much criticism.
  • Employers may be rejoicing at the prospect of the demise of 1095 reporting, but that may be premature. Any ACA replacement is likely to include employer reporting of coverage so that the IRS knows who has coverage. The bill indicates reporting will be required for tax credits starting in 2020.

We will issue more guidance and updates as we receive more information.