United States: American Health Care Act – Key Takeaways For Employers And Plan Sponsors

On March 6, 2017, the House of Representatives' Ways and Means Committee and Energy and Commerce Committee released budget reconciliation recommendations that will, after mark-up beginning on March 8th, form the American Health Care Act (the "AHCA"). The AHCA is intended to be the law that "repeals and replaces" the Affordable Care Act ("ACA"). The Ways and Means Committee bill certainly repeals most of the taxes applied under the ACA and the Energy and Commerce Committee bill significantly alters Medicaid and how that program is funded. Nevertheless, the AHCA would retain a number of key ACA provisions, albeit modified in some respects.

The proposed AHCA has already faced strong opposition from members of both parties and, thus, it is likely that this legislation will either undergo revisions or be substituted with another bill. In any event, the draft AHCA, when read in conjunction with other recent attempts to repeal and replace the ACA, provides a roadmap of where Congress appears to be heading. Below are key takeaways that employers and plan sponsors should be aware of and a few things they should keep an eye on as things develop.

1. Individual and Employer Mandates

Like other efforts to repeal and replace the ACA, the AHCA would essentially repeal the ACA's individual and employer mandates effective after December 31, 2015. The AHCA does this by "zeroing-out" the penalties for not having minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate).

Instead of imposing a tax penalty on individuals who do not enroll in minimum essential coverage, the AHCA attempts to encourage individuals to have coverage by allowing insurance carriers to charge a 30% premium surcharge to those who fail to have continuous coverage (i.e., a break in coverage of 63 days or more would trigger the surcharge). Although the AHCA keeps in place the ACA's prohibition against preexisting condition exclusions, the 30% surcharge appears to be another means of discouraging people from waiting until they have a health issue to purchase coverage.

Outside of the effective repeal of the employer mandate, the AHCA's impact on group health plans appears to be minimal. However, if the 30% surcharge is part of the final legislation, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in pre-ACA days.

2. Employer Reporting Obligations to Continue

Although the individual and employer mandates would be repealed, it is likely that the ACA reporting obligations (Forms 1094-B/C and 1095-B/C) will remain in place, at least in some forms. Until 2020, individuals will still be able to get premium credits when purchasing coverage on Marketplaces. Thus, the reporting requirement under Section 6055 of the Internal Revenue Code (the "Code") remains important. With the employer mandate repeal, reporting under Code Section 6056 seems less important, but it may nevertheless continue until 2020. After 2020, tax credits would be available under the AHCA, so the IRS would likely still need employers to report at least some information regarding coverage.

3. Cadillac Tax Repealed (but really just delayed)

Despite the AHCA provision "repealing" the so-called Cadillac Tax, the legislation merely delays the effective date of the tax until 2025. The Cadillac Tax was originally slated to be effective in 2018, but it was delayed until 2020 in prior budget legislation. Given that the AHCA is also budget reconciliation legislation, the newest delay may simply be a procedural step toward future repeal. Employers and plan sponsors should nevertheless keep the Cadillac Tax on their radars.

4. Many ACA-Related Taxes Repealed

The AHCA would repeal or modify, effective after December 31, 2017, numerous taxes created or modified by the ACA, some of which would have a direct or indirect impact on group health plans. For example, the branded prescription drug tax, medical device tax, and the health insurance tax would be repealed. The Medicare tax on investment income and the Medicare surcharge on high-earners would also be repealed. The annual contribution limitation on health flexible spending accounts ("HFSAs") would be removed. The penalty for ineligible distributions (those made before age 65 for non-medical expenses) under health savings accounts ("HSAs") would be reduced to 10%. The Retiree Drug Subsidy would again be deductible.

5. Popular ACA Reforms Remain

Because the AHCA is budget reconciliation legislation, only revenue-related portions of the ACA can be repealed or modified. Thus, various ACA market reforms and patient protections would remain in place. These include:

  • The requirement to cover dependent children through age 25;
  • The prohibition on waiting periods in excess of 90 days;
  • The requirement to cover essential health benefits (individual and small group market plans only);
  • The prohibition against lifetime or annual dollar limits on essential health benefits;
  • The annual cap on out-of-pocket expenditures on essential health benefits;
  • Uniform coverage of emergency room services for in-network and out-of-network visits;
  • Required first-dollar coverage of preventive health services;
  • The prohibition of preexisting condition exclusions;
  • Enhanced claims and appeals provisions; and
  • Provider nondiscrimination.

6. Employee Tax Exclusion Remains Intact

Previous attempts to repeal and replace the ACA included revenue-generating provisions to pay for the repeal of the ACA-related taxes. In prior legislation, this would have been accomplished by eliminating or reducing the employer deduction for health benefit expenses or by capping the employee tax exclusion for the cost of coverage. The AHCA does not currently include a similar provision, but it is certainly possible that such a provision can be added as the AHCA is negotiated and revised.

7. HFSA/HSA Expansion

The AHCA also modifies the tax rules related to HFSAs and HSAs. As noted above, the AHCA would remove the annual contribution cap on HFSAs. Additionally, HFSAs and HSAs would now be able to reimburse on a non-taxable basis over-the-counter medication without a prescription. The annual contribution limit to HSAs would be increased to $6,550 (individual) and $13,100 (family). Spouses would both be able to make catch-up contributions to the same HSA.

8. New Tax Credit Scheme Could Cause Administrative Issues for Plan Sponsors

What appears to be one of the more politically controversial aspects of the AHCA is the new advanced tax credit scheme. At its core, the AHCA proposal is very similar to the premium tax credits available under the ACA – individuals would get an advanced tax credit to help pay for individual insurance market premiums. The amount of the credit would be based on age and would be available only to individuals with income less than $75,000 (individual) or $150,000 (jointly with a spouse). The credit would be administered under the rules similar to the Health Coverage Tax Credit ("HCTC") (see our July 16, 2015 blog entry for more information on the HCTC).

Individuals enrolled in group health plans would not eligible for the tax credit, unless they are enrolled in COBRA coverage that is not subsidized by the employer. Importantly, in order to receive the credit, the coverage (whether individual market or COBRA) cannot cover services related to abortion (subject to certain exceptions).

This arrangement would likely create administrative headaches for plan sponsors and COBRA administrators. The new tax credit scheme appears to require monthly reporting by eligible coverage providers, so COBRA administrators would have to develop procedures to comply with this requirement. Employers sponsoring plans that cover abortion services will need to consider the impact that will have on COBRA qualified beneficiaries. Providing COBRA coverage that covers abortion will prevent a qualified beneficiary from getting a tax credit, but simply carving abortion coverage out from COBRA coverage is not likely a viable option because COBRA coverage must be identical to active employee coverage. Should this provision find its way to the final legislation, plan sponsors and COBRA administrators will need to work with counsel and other consultants to develop a compliance strategy.

Given the opposition the AHCA is facing, it is very likely that there will be changes to the legislation as it makes its way through Congress. We will continue to monitor legislative efforts and will provide updates as substantive developments occur.

American Health Care Act – Key Takeaways For Employers And Plan Sponsors

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.