United States: House ACA Bill Contains Numerous Provisions Affecting Employers

Nicole Elliott is an attorney in Holland & Knights Washington D.C., office and Christopher K. Buch is an attorney in Holland & Knights Chicago office

HIGHLIGHTS:

  • The House Committee on Ways and Means and the House Energy and Commerce Committee released proposed legislation on March 6, 2017, to partially repeal and replace parts of the Affordable Care Act (ACA), which was signed into law in March 2010.
  • However, the legislation proposed by the House Ways and Means Committee has the most impact on employers, which is outlined in this client alert. It is expected that some of these proposals will undergo revisions.
  • Employers should continue to monitor the situation, and if passed should review the new legislation for consequences and opportunities.

The House Committee on Ways and Means and the House Energy and Commerce Committee released proposed legislation on March 6, 2017, to partially repeal and replace parts of the Affordable Care Act (ACA), which was signed into law in March 2010.

The House Energy and Commerce Committee's proposed legislation contains a number of changes related to patient access, reforms to Medicaid and individual insurance markets. However, the legislation proposed by the House Ways and Means Committee has the most impact on employers, which is outlined in this client alert. It is expected that some of these proposals will undergo revisions.

Employer Mandate

The ACA requires applicable large employers (those employers with at least 50 full-time equivalent employees) to offer health insurance to full-time employees or pay a penalty. The proposed legislation amends the Internal Revenue Code of 1986 (Code), as amended to be effective as of Jan. 1, 2016, to reduce the penalty for failing to offer health insurance to zero dollars. If signed into law, the effective date of this provision would give employers that were impacted by the penalty in 2016 retroactive relief from such penalties.

While the penalty for failing to offer health insurance is eliminated in the proposed legislation, the reporting obligations imposed upon employers by the ACA is not. The proposed legislation creates new Sections of the Code which provide individuals who purchase eligible health insurance with an advance, refundable tax credit based on the individual's age beginning in 2020. Among other criteria, to be eligible to receive the credit, the individual must not have access to government health insurance programs or an offer of coverage from his or her employer. The legislation requires an individual who is seeking to have the credit advanced during the year to submit a written statement from his or her employer regarding whether such individual is eligible for coverage. Employers are required to comply. In addition to this prospective reporting to individuals, the legislation requires an employer to include information about the offer of coverage on the IRS Form W-2, which is provided to employees and filed with the IRS. This will help the IRS determine whether such individual is eligible for the coverage. Interestingly, unlike the current reporting regime which impacts applicable large employers, this reporting could impact employers of all sizes.

Delay of "Cadillac Tax"

The ACA originally imposed a non-deductible, high-cost plan excise tax, commonly known as the "Cadillac tax," equal to 40 percent of the cost of health coverage that exceeds certain premium thresholds. Originally scheduled to take effect in 2018, Congress delayed implementation of this tax until 2020. In addition, Congress further made this tax a deductible expense for those employers that would be subject to it. Under the proposed legislation, the Cadillac tax implementation date has been delayed further so that it will not apply to any taxable period before Jan. 1, 2025. However, given the unpopularity of this tax there has been considerable debate about possibly replacing it. As currently formulated, it is unlikely that this tax will ever come into effect.

Health Savings Accounts

In addition to lowering taxes on distributions from a health savings account (HSAs) that an individual uses for something other than a qualified medical expense, the proposed legislation makes a number of changes to rules applicable to HSAs that may be offered by employers.

Beginning in 2018, the proposed legislation raises the limits on annual health savings account contributions per year from the current limits – $3,400 for self-only coverage and $6,750 for family coverage – to a limit that will be equal to the maximum amount of the annual deductible and out-of-pocket expense limits under a high deductible health plan (HDHP). If the 2017 limits for HDHP's were to stay in place for 2018, the HSA limits would increase to $6,550 for self-only coverage and $13,100 for family coverage.

Also beginning next year, the proposed legislation would allow married individuals that are age 55 or older to make catch-up contributions (additional contributions of up to $1,000 currently allowed to be made to health savings accounts by individuals that are age 55 or older) to the same HSA, rather than solely to a separate health savings account in the name of the spouse making the catch-up contribution.

Finally, the proposed legislation provides that, beginning in 2018, if a HSA is established during the 60-day period beginning on the date that an individual's coverage under an HDHP begins, then, solely for purposes of determining whether an amount paid is for a qualified medical expense, such HSA is to be treated as if it was established when the coverage began.

Health Flexible Spending Accounts

Currently, Section 125(i) of the Code limits voluntary employee salary reductions for contributions to a health flexible spending account to a maximum of $2,600 for 2017 (which may or may not be matched by the employer). The proposed legislation removes the cap on employee salary reduction contributions to health flexible spending account in 2018.

Medicare Part D Subsidy

Prior to the ACA, employers who offered certain levels of prescription drug benefits to its retired employees were eligible to receive a subsidy from the federal government to help such employers assist its Medicare-eligible former employees receive greater prescription drug benefits. The ACA eliminated the ability for employers to take a tax deduction based on the value of this subsidy. Beginning in 2018, the proposed legislation, however, once again allows a deduction for employers for retiree prescription drug costs.

Small Business Tax Credit

Beginning in 2020, the proposed legislation rolls back the ACA's tax credit for certain employers with less than 25 full-time equivalent employees that provided qualified healthcare coverage for its employees through the small business health options program, or SHOP marketplace. Under the ACA, such employers could have received a credit of up to 50 percent of the premiums such employers paid for its employees.

While the full rollback of the credits is not applicable until 2020, such employers described above will not be eligible for a credit between 2018 and 2020 if the coverage it purchases for its employees includes coverage for abortions (other than those that are necessary to save the life of the mother or with respect to pregnancies that are the result of rape or incest).

Remuneration from Certain Insurance Providers

As a result of ACA, Code Section 162(m)(6) currently limits the amount of remuneration paid to officers, directors or employees that certain health insurance providers can deduct as an ordinary and necessary business expense to $500,000. The proposed legislation provides that this $500,000 limitation will expire at the end of 2017. Thus, beginning in 2018, such providers would only be subject to the general $1 million limitation set forth in Code Section 162(m).

Employer Takeaways

At this time, it is important to note that all of the revisions and changes set forth above are merely proposals and have not yet become law. Notwithstanding strong pressure to support final passage, the fate of the proposed legislation is still to be determined. Employers should continue to monitor the situation, and if passed should review the new legislation for consequences and opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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