Late in the afternoon on March 6, two committees of the U.S. House of Representatives introduced legislation that would replace and repeal significant portions of the Patient Protection and Affordable Care Act, also known as the ACA or Obamacare. The new legislation, titled the American Health Care Act, addresses a number of key complaints that have been raised by employers since the ACA's implementation. Several provisions of the new legislation that are of particular interest to employers are described briefly below.
Dismantlement of Employer Mandate
In general, the ACA's Employer Mandate requires certain large employers (those with 50 or more full time equivalent employees) to offer health care coverage to their full time employees (those working 30 or more hours per week) or pay a penalty. The American Health Care Act does not repeal this mandate, but it does reduce the penalty that is associated with a large employer's failure to offer health care coverage to $0. That means that there would be no penalty if a large employer did not offer coverage to a full time employee. The change also provides flexibility to employers that do offer coverage to define a "full time employee" by means other than a 30 hour work week and to establish waiting periods for coverage in excess of 90 days, for example.
Retention of Certain Patient Protections
The ACA introduced significant mandates related to the type of benefits that must be provided by a group health plan. While the status of certain ACA mandated benefits remains unknown, the American Health Care Act retains a number of patient protections that are provided under the ACA. It preserves the prohibitions against pre-existing condition exclusions and annual or lifetime limits on health care benefits. Additionally, it continues to allow a dependent child to remain on his or her parent's health care plan until attaining age 26.
Relaxation of Reporting Requirements
In order to evaluate compliance with the Employer Mandate (and related Individual Mandate), the ACA implemented burdensome tax reporting obligations on certain employers and insurers. The American Health Care Act relaxes those reporting requirements and introduces a new process by which an employer's reporting obligations may be satisfied with a disclosure on a particular employee's annual Form W-2.
Encouragement of Alternative Health Care Arrangements
The ACA contains a number of provisions that serve as a disincentive for employers to use alternative, non-group health plan arrangements to provide coverage to their employees. Those disincentives are primarily tax-related and were modified by the American Health Care Act. For example, the American Health Care Act permits over-the-counter drugs to be reimbursed on a pre-tax basis (without a prescription), repeals the annual limits on contributions to a health flexible savings account (currently at $2,600), increases the annual maximum health savings account limits and lowers the tax on distributions from health savings accounts that are not used for qualified medical expenses.
Repeal of Cadillac Tax
The ACA imposes a tax on certain high-cost, employer-provided health plans beginning in 2020. The American Health Care Act delays this "Cadillac tax" until 2025.
After the introduction of the American Health Care Act, employers are justifiably optimistic but should remain cautious. We recommend that employers refrain from making any significant changes to their health insurance programs until after any legislation is officially enacted and adopted. Until that time, employers should continue providing coverage and otherwise following the requirements of the ACA.