Proposed Reform of the ACA

You will read a lot in the next few days about the “repeal” of the ACA. Whether you call it repeal or reform, the newly proposed American Health Care Act contains welcome relief for employers from the serious penalties and mind-numbing complexity of the current ACA.

There will be fireworks, but something will pass this year if Republicans get over their internal differences. The proposed law only needs simple majorities in the House and Senate to get through Congress, because it is designed not to further increase the deficit over the next ten years, which qualifies it as filibuster-proof budget reconciliation. Due to the restrictions of budget reconciliation, many substantive provisions of the ACA will remain on the books until that far distant future when 60 members of the Senate can find common ground, or until the filibuster rule is eliminated.

This is how the proposed American Health Care Act addresses employer concerns:

#1 Concern: ACA penalties in any month for not making offers to 95% of FTEs, or for not making affordable offers to even a single employee.

Ways and Means: No employer penalties, and the repeal of employer penalties is retroactive.

#2 Concern: Complicated ACA reporting on the infamous 1094/1095 forms.

Ways and Means: There will be simpler W-2 reporting. Because this is designed as filibuster-proof budget reconciliation, the current reporting requirements cannot be repealed by a simple majority. But there is a wink and a nod in the Ways and Means Bill, which says it’s reasonable to expect that the IRS won’t be enforcing the 1094/1095 reporting rules after the simpler W-2 method is in force. Ideally, the 1094/1095 reporting can be eliminated in a later law, but it will stay on the books until that happens.

Our guidance: finish up filing your 1094 forms for the 2016 year. All the work you did for the 1095 forms was required.

#3 Concern: Possible 40% Cadillac tax starting in 2020 on high cost plans

Ways and Means: Postpone Cadillac tax to 2025.

23 key changes:

There are 23 important changes described in the Ways and Means summary. The link is at the bottom of this article. Among them are:

  • Retroactive elimination of the individual insurance mandate;
  • Continuation of the rule that coverage cannot be denied for pre-existing conditions, with addition of a rule that insurers can charge up to 30% extra for people who stay uninsured until they decide they “need” insurance;
  • Kids still can stay on parents’ plans until 26;
  • Repeal of the .9% extra FICA tax on high income wages, effective 2018;
  • Repeal of the 3.8% tax on net investment income for high income persons, effective 2018;
  • Near doubling of HSA limits to the full amount of deductibles and out of pocket limits in a high deductible policy, effective 2018;
  • Lowering of penalty for HSA non-health withdrawals, effective 2018;
  • Removal of the $2,500 cap for Section 125 health flex accounts, and freeing up those accounts for non-prescription drugs, effective 2018;
  • Re-characterizing non-prescription drugs as eligible medical expenses, effective 2018;
  • Reducing the income level from 10% of AGI to 7.5% of AGI for purposes of the medical expense deduction, effective 2017 for those over age 65 and 2018 for those who are younger; and
  • Even the 10% tax on tanning salons is eliminated, effective 2018.

Federal credits for the uninsured.

The greatest controversy among the Republican majorities will be the provision of advancable federal credits to purchase state-approved, major medical health insurance and unsubsidized COBRA coverage. A person must not have access to other employer or government insurance, and be a citizen, national, or qualified resident alien. No one in jail is eligible.

 The credits are income based, and phase out at the rate of $100 / $1,000 for income over $75,000 ($150,000 joint filers). They are also age based, and can range from $2,000 to $14,000 for a family.

 For a single person at or below the income limits, the credits are:

-Under age 30: $2,000

-Between 30 and 39: $2,500

-Between 40 and 49: $3,000

-Between 50 and 59: $3,500

-Over age 60: $4,000

The credits are additive for a family, and capped at $14,000. They will adjust each year at CPI plus 1.

How can this be revenue neutral?

You might ask how is this revenue neutral for the next 10 years? Medicaid expansion will be slowed down, and there will be changes to the system of federal grants for the Medicaid program (giving states a fixed budget and more local authority). The other “saver” is that the credit system does not give as much aid to lower paid persons as the current ACA. Even more than before, companies which provide good insurance will be valued by employees.

A copy of the Ways and Means summary is at this link.