United States: Repeal and Replace – Tax Implications of the Proposed American Health Care Act (AHCA)

The long-awaited Republican health care plan to repeal and replace Obamacare, titled the "American Health Care Act" (AHCA), was released by House Republicans on Monday, March 6. The AHCA is largely similar to a draft version that was leaked to the press a couple of weeks ago but with a number of significant modifications, including the addition of income-based phaseouts for the new health care coverage credit and delayed effective dates for several key provisions.

ACA Repeal

The proposed AHCA would repeal virtually all of the Affordable Care Act (ACA, or Obamacare), including the following tax provisions:

  • The individual mandate – by making the penalty amounts zero, effective for months beginning after Dec. 31, 2015 (i.e., retroactive for 2016).
  • The employer mandate – reducing the penalty amounts to zero, effective for months beginning after Dec. 31, 2015 (i.e., retroactive for 2016).
  • The premium tax credit would be repealed for tax years beginning after Dec. 31, 2019. The credit would also be subject to a number of amendments, generally effective for tax years beginning after Dec. 31, 2017.
  • The 3.8% net investment income tax (NIIT), effective for tax years beginning after Dec. 31, 2017.
  • The 0.9% additional Medicare tax, effective with respect to remuneration received after, and tax years beginning after, Dec. 31, 2017.
  • The higher floor for medical expense deductions, effective for tax years beginning after Dec. 31, 2017. Thus, the 7.5% floor that was previously in place would be restored.
  • The small employer health insurance credit, effective for amounts paid or incurred in tax years after Dec. 31, 2019.
  • The limitation on health Flexible Spending Account (FSA) contributions, for tax years beginning after Dec. 31, 2017.
  • The so-called "Cadillac" tax on high-cost, employer-sponsored health plans would not apply to any tax period beginning after Dec. 31, 2019 and before Jan. 1, 2025.
  • The exclusion from "qualified medical expenses" of over-the-counter medications for purposes of Health Savings Accounts (HSAs,), Archer Medical Savings Accounts, Health Flexible Spending Arrangements (Health FSAs), and Health Reimbursement Arrangements (HRAs,), effective for amounts paid, and expenses incurred, with respect to tax years beginning after Dec. 31, 2017.
  • The medical device excise tax, for sales after Dec. 31, 2017.
  • The annual fee on health insurance providers for calendar years beginning after Dec. 31, 2017.
  • The elimination of a deduction for expenses allocable to Medicare Part D subsidy, effective for tax years beginning after Dec. 31, 2017.
  • The 10% tanning tax, effective for services performed after Dec. 31, 2017.

Replacement

The main feature of the proposed AHCA is a new refundable tax credit for health insurance, described below. The AHCA would also make a number of significant changes to strengthen HSAs in addition to those described above.

Health insurance coverage credit: The AHCA would create a new refundable tax credit for health insurance coverage—generally, state-approved major medical health insurance and unsubsidized COBRA coverage. The credit would generally equal the lesser of: (i) the sum of the applicable monthly credit amounts (below) or (ii) the amount paid by the taxpayer for "eligible health insurance" for the taxpayer and qualifying family members.

  • Monthly credit amount: The monthly credit amount with respect to any individual for any "eligible coverage month" (in general, a month when the individual is covered by eligible health insurance and is not eligible for "other specified coverage," such as coverage under a group health plan or under certain governmental programs, like Medicare and Medicaid) during any tax year would be 1/12 of:

    • (A)  $2,000 for an individual who has not attained age 30 as of the beginning of the tax year;
    • (B)  $2,500 for an individual age 30 – 39;
    • (C)  $3,000 for an individual age 40 – 49;
    • (D)  $3,500 for an individual age 50 – 59; and
    • (E)  $4,000 for an individual age 60 and older.
  • Income-based phaseout. The credit would phase out at higher levels of income. Specifically, it would be reduced by 10% of the excess of the taxpayer's modified adjusted gross income (MAGI) for a tax year over $75,000 (double that for a joint return). The $75,000 amount, as well as the dollar amounts in (A) through (E), above, would be adjusted for inflation.
  • Other limitations on the credit. The credit would be subject to a $14,000 aggregate annual dollar limitation with respect to the taxpayer and the taxpayer's qualifying family members (generally meaning the taxpayer's spouse, dependent, and any child of the taxpayer who hasn't attained age 27). Married couples would have to file jointly in order to receive the credit, and no credit would be allowed with respect to any individual who is a dependent of another taxpayer for a tax year beginning in the calendar year in which such individual's tax year begins.
  • Advance credit payments. The AHCA would also create a new Code Sec. 7529, which would direct a number of Agency heads to consult and establish a program for making payments to providers of eligible health insurance for taxpayers eligible for the new Code Sec. 36C credit, no later than Jan. 1, 2020.
  • Excess amounts. The AHCA would also create an "excess health insurance coverage credit," which would provide a mechanism under which "excess" credit amounts (generally, the amount, if any, by which the Code Sec. 36C credit amount exceeds the amount paid for coverage) can, at the taxpayer's request, be contributed to a designated HSA of the taxpayer. However, no such payment would be made with respect to taxpayers (or account beneficiaries) with "seriously delinquent tax debt".
  • Penalty for lapse of insurance.  To discourage healthy individuals on insurance plans from leaving, which would drive up overall premiums, the plan would impose up to a 30% premium penalty for up to a year on those who let their insurance lapse for longer than 63 days.
  • Effective date. The above amendments relating to the Code Sec. 36C health coverage credit would apply to months beginning after Dec. 31, 2019, in tax years ending after that date.

HSA Reforms

The AHCA would make a number of changes intended to strengthen and enhance HSAs, including:

  • Increased contribution limits: The AHCA would increase the maximum HSA contribution limits to equal the sum of the amount of the HSA deductible and out-of-pocket limitation, effective for tax years beginning after Dec. 31, 2017. These limits are currently $2,250 plus inflation ($3,400 for 2017) for self-only coverage and $4,500 plus inflation ($6,750 for 2017) for family coverage. Under the AHCA, they would be at least $6,650 for self-only and $13,100 for family coverage beginning in 2018.
  • "Catch-up contributions" by both spouses: The AHCA would allow both spouses to make "catch-up contributions" to the same HSA, effective for tax years beginning after Dec. 31, 2017.

If you have any questions about the proposed health care reform, please contact your tax advisor or Darla Hemmann, Partner, Tax Services, at 314.983.1203 or dhemmann@bswllc.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.