On March 6, 2017, Republican leadership in the U.S. House of Representatives issued two bills to repeal and replace the Affordable Care Act (ACA). The draft legislation is collectively called the American Health Care Act.
If enacted, the new law would not repeal the ACA entirely, although it would make significant changes to key provisions.
The ACA’s employer and individual mandate would be repealed retroactively beginning in 2016. Key consumer protections, like the ACA’s prohibition on pre-existing condition exclusions and dependent coverage to age 26, would remain intact.
Key provisions for employers in the draft bill are as follows:
- The employer mandate would effectively be repealed retroactively, reducing the penalty to zero.
- The individual mandate would effectively be repealed retroactively, reducing the penalty to zero and replaced with a “continuous coverage” requirement beginning in 2019. Under this new requirement, an individual who goes longer than 63 days without continuous health coverage would be assessed a flat 30% late enrollment surcharge in addition to the base premium for 12 months.
- Dependents could continue on their parents’ plan until age 26.
- The $2,500 (indexed for cost-of-living adjustments) limit on contributions to health flexible spending accounts (FSAs) would be repealed effective for plan years beginning on or after January 1, 2018.
- The Cadillac Tax would be delayed further until tax years beginning on or after January 1, 2025.
For Health Savings Accounts (HSAs), beginning in 2018:
- The basic contribution limit for HSAs would be increased to at least $6,550 for self-only and $13,100 for family.
- Both spouses would be able to make catch-up contributions to one HSA.
- If an HSA were to be established during the 60-day period beginning on the date the high deductible health plan coverage begins, the HSA would be backdated to that date to determine if expenses are qualified.
- Distributions from HSAs that are not used for qualified medical expenses would be included in income and subject to an additional tax. The bill would lower the tax rate on distribution penalties after December 31, 2017.
Key omissions to note:
- The cap on tax exemption for employer-sponsored health care plans has been dropped. Leaked draft legislation included a cap at the 90th percentile of current premiums, but was subject to much criticism.
- Employers may be rejoicing at the prospect of the demise of 1095 reporting, but that may be premature. Any ACA replacement is likely to include employer reporting of coverage so the IRS knows who has coverage. The bill indicates reporting will be required for tax credits starting in 2020.
*Downloadable content is reserved for North Risk Partners clients. Login credentials are needed to download the bulletin. If you don’t know your login credentials, please contact your advisor.
This regulatory update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content provided by our professional consulting partners at Synergy Human Resources.