Wednesday, March 8, 2017
ACA REPEAL TAKES SHAPE: INTRODUCING THE AMERICAN HEALTH CARE ACT
Updated May 8, 2017: To read about the recent updates regarding The American Health Care Act, please click here to see "The American Health Care Act: Round Two"
In case you have not seen the news (or tweets…), the House Ways and Means and Energy and Commerce committees have introduced two budget reconciliation bills, collectively titled the “American Health Care Act” (the “Act”), to replace the Affordable Care Act (“ACA”). While we do not typically comment on proposed legislation (after all, only 3% of proposed legislation actually becomes law), the magnitude of this proposed legislation warrants special attention. This Client Advisory summarizes key portions of the Act for employers and their employee benefits.
Employers have been on alert since President Trump’s initial pledge to repeal the ACA as the top priority for his Administration appeared aimed more at relieving the burdens on consumers rather than employers. This left many to question whether the compliance burdens imposed on employers under the ACA would be a high priority on the Administration’s repeal and replace agenda. In welcome news for employers, however, the proposed American Health Care Act would take steps towards alleviating certain compliance burdens for employers, including the requirement to offer health coverage to full-time employees or be subject to employer mandate penalties.
The proposed legislation is being fast-tracked with a vote expected within the next week. The Act seeks to repeal and replace the ACA through a budget process known as reconciliation, which allows the legislation to avoid a potential filibuster in the Senate. Passage of the legislation would have an immediate impact on employers and individuals, with several provisions having retroactive effective dates of January 1, 2016.
Of particular note to employers are the provisions of the American Health Care Act that would:
- Effectively repeal the individual and employer mandate provisions of the ACA by reducing the applicable penalties to zero. The repeal would be retroactively effective as of January 1, 2016.
- Increase contribution limits for Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) for individuals and families to use for health care expenses. The Act would increase the annual HSA contribution limit to equal the out-of-pocket limitations for high deductible plans (for 2018, a limit of $6,550 for self-only coverage and $13,100 for family coverage), and would repeal the ACA's annual limitation on an individual's contributions to an FSA.
- Repeal the ACA's income-based premium tax credits and replace them with age-based, refundable tax credits for individuals and families who do not receive insurance through work or a government program to use for the purchase of insurance.
- Delay the 40% "Cadillac Tax" on high-cost employer-sponsored health coverage for all tax years beginning prior to January 1, 2025.
Importantly, certain portions of the ACA will remain intact, including the requirement for certain plans to cover dependent children until age 26, essential health benefit requirements for certain fully-insured health plans, and the prohibitions on lifetime and annual limits. The ACA’s prohibition on pre-existing condition exclusions would also remain in effect under the American Health Care Act; however, to protect against adverse selection (when healthy individuals forego purchasing insurance and only purchase coverage after a health issue arises), the Act contains a “continuous coverage incentive,” which would allow insurance issuers to assess a flat 30 percent late-enrollment surcharge on top of the base premium for individuals with a lapse in health insurance coverage of greater than 63 days within the last 12 months. Issuers would be able to assess the late-enrollment surcharge for the first 12 months of coverage. Additionally, while we expect to see changes to employers’ ACA reporting obligations, it appears that some form of employer health coverage reporting will remain for employers.
Of course, it remains to be seen whether, and in what form, the American Health Care Act will make it through Congress, and what impact the Act will have on employers and their health plans. For now, employers can breathe a sigh of relief knowing that current efforts to repeal and replace the Affordable Care Act are being carried out with the interests of employers in mind.
For those who are eager to see the demise of the ACA, the proposed elimination of the individual and employer mandates are sure to be heralded as both tangible economic and philosophical victories. But for those originally inspired by the ACA’s promise of “affordability,” little in the proposed legislation seems intended to directly reduce the costs of health insurance (or health care) to consumers. Rather, with its proposal for supercharged HSAs and FSAs, the American Health Care Act seems to imply that future savings in health care costs will be realized by more informed consumers using their pre-tax HSA and FSA dollars to make more prudent choices about their own health care consumption.
To read a full copy of the proposed American Health Care Act, please click here. If you would like additional information about the American Health Care Act and its potential impact on your employee benefits compliance strategies, please contact a member of Maynard’s Employee Benefits Practice Group.