Benefits and Compensation

ACA Repeal Proposal Released; Cadillac Tax Remains

On March 6, House Ways and Means Committee Chairman Kevin Brady (R-TX) released long-awaited proposed legislation to repeal and replace the Affordable Care Act (ACA) through a budget process known as reconciliation—a process that allows legislation to be passed with a simple majority in the Senate. The legislation is part of House Republicans’ American Health Care Act.

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Cadillac Tax Intact but Pushed Back

While there had been talk of capping the longstanding tax exclusion for employer-provided health insurance—which would have shifted costs to individuals rather than employers—there is no such cap in the current proposal.

Instead, it leaves in place the widely unpopular Cadillac Tax but delays its implementation date to January 1, 2025. The effective date had already been pushed back once under President Obama, from January 1, 2018 to January 1, 2020.

Employer and Individual Mandates Gone … Retroactively

Both the employer and individual mandates are nullified under the new proposal, which removes the penalties associated with not having (or, in the case of employers, providing) minimum essential coverage.

The penalties are removed retroactive to January 1, 2016, which is meant to provide relief to individuals and employers affected by the penalties in 2016. How this would play out in actual practice, however, is not yet fully clear.

Additionally, while the proposal calls for simplified reporting of an offer of coverage on the W-2 by employers, this change cannot be made through the reconciliation process. However, according to Brady’s press release, “[W]hen the current reporting becomes redundant and replaced by the reporting mechanism called for in the bill, then the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes.”

Additional Provisions, From Taxes to Tanning

Additional provisions of the proposal include the following:

  • Individuals, regardless of income, would be required to repay excess premium tax credits for tax years 2018 and 2019.
  • Starting in 2020, the ACA’s premium tax credit would be repealed. In the meantime, premium tax credits would be available for the purchase of stripped-down “catastrophic-only” health plans and certain qualified plans not offered through an exchange. Premium tax credits could not be used to purchase plans that offer elective abortion coverage. The schedule under which an individual’s or family’s share of premiums is determined would be revised to adjust for household income and individual ages.
  • Starting in 2020, the small business tax credit would be repealed. Between 2018 and 2020, the small business tax credit would generally not be available for qualified health plans that offer elective abortion coverage.
  • The ACA removed over-the-counter medications from the list of qualified medical expenses that could be covered with health savings accounts (HSA’s); this restriction would be lifted starting with tax year 2018.
  • The tax on HSA or Archer MSA distributions not used for qualified medical expenses would be reduced to pre-ACA percentages, starting with distributions made after December 31, 2017.
  • The limit on the amount an individual or employer may contribute to an FSA—approximately $2,500 annually, indexed for cost-of-living adjustments—would be removed for taxable years starting after December 31, 2017.
  • The ACA’s 2.3% excise tax on the sale of certain medical devices would be repealed starting January 1, 2018.
  • The pre-ACA business-expense deduction for retiree prescription drug costs, without reduction by the amount of any federal subsidy, would be reinstated starting with taxable years beginning after December 31, 2017.
  • The pre-ACA threshold for itemized deduction of medical expenses exceeding 7.5% of a taxpayer’s adjusted gross income (AGI) would be reinstated for taxpayers age 65 and older starting in 2017, and for all other taxpayers starting in 2018.
  • The additional 0.9% income-based Medicare tax would be repealed starting in 2018.
  • An advanceable, refundable tax credit for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage would be created for those without employer-provided insurance or access to government health insurance programs. The credits would be adjusted by age, ranging from $2,000 for those under age 30 to $4,000 for those over age 60, and would be phased out for income levels starting at $75,000 annually (or $150,000 for joint filers). Family credits would be capped at $14,000.
  • Starting in 2018, the limit on annual HSA contributions would be increased to equal the maximum of the sum of the annual deductible and out-of-pocket expenses permitted under a high-deductible health plan. Therefore, the basic limit would be at least $6,550 in the case of self-only coverage and $13,100 in the case of family coverage.
  • Starting in 2018, both spouses would be allowed to make catch-up contributions to one HSA.
  • Starting in 2018, if an HSA is established during the 60-day period beginning on the date that an individual’s coverage under a high-deductible health plan begins, then the HSA is treated as having been established on the date coverage under the high-deductible health plan begins for purposes of determining if an incurred expense is a qualified medical expense.
  • The ACA-imposed tax of 3.8% applied to certain net investment income of individuals, estates, and trusts with income above certain amounts would be repealed starting in 2018.
  • Generally, employers may deduct the remuneration paid to employees as “ordinary and necessary” business expenses. The ACA added a limitation for certain health insurance providers that exceeds $500,000 paid to an officer, director, or employee. The proposal would remove this limitation starting in 2018.
  • The ACA-imposed annual fees on certain health insurers and pharmaceutical manufacturers would cease to apply starting in 2018.
  • And last but not least, the proposal would repeal, starting in 2018, the ACA-imposed 10% sales tax on indoor tanning services.

Medicaid Expansion Halted

The Energy and Commerce Committee, chaired by Greg Walden (R-OR) released concurrent proposed legislation that would, among other things:

  • Create a Patient and State Stability Fund designed to assist high-risk individuals;
  • Repeal states’ option to extend Medicaid coverage to adults above 133% of the federal poverty level by December 31, 2019, while grandfathering in current enrollees;
  • Create a per-capita Medicaid funding formula for states;
  • Increase the permissible age variation in health insurance premium rates from 3-to-1 to 5-to-1; and
  • Impose penalties for applicants looking to re-enroll in health coverage after coverage lapses of longer than 63 days.

Additional information is available here.

JenJennifer Carsen, JD,is a Senior Legal Editor for BLR’s human resources and employment law publications, focusing on benefits compliance. In the past, she served as the managing editor of California Employer Resources (CER), BLR’s California-specific division, overseeing the content of CER’s print and online publications and coordinating live events and webinars for both BLR and CER.

Before joining CER in 2005, Ms. Carsen was a Legal Editor at CCH, Inc. and practiced in the Labor & Employment Department at Sidley & Austin, LLP in Chicago. She received her law degree from the New York University School of Law and her B.A. from Williams College. She is a member of the New Hampshire Bar Association.

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