On March 6, 2017, Republican leaders in the U.S. House of Representatives introduced budget reconciliation bills in both the Ways and Means and Energy and Commerce committees. The bills, collectively titled the American Health Care Act, are designed to repeal and replace certain provisions of the Affordable Care Act (ACA).
The bills represent initial drafts of legislation that could certainly change as they make their way through the legislative process. The bills will begin to be “marked up” by their respective committees on March 8, 2017. If passed by the committees, the marked up bills will be combined by the House Budget Committee, sent to the House Rules Committee and then presented for a vote to the full House of Representatives. If passed by the House of Representatives, the combined bill will proceed to the Senate. If the Senate passes a modified version of the bill, it will be returned for a conference with the House before being presented to the President for signature.
The bills are substantively similar to the “discussion draft” bill leaked on February 24, with a few notable exceptions. Perhaps the two most significant changes from the discussion draft are that the committee bills:
- Do not cap the income tax exclusion on employer-provided health plans; and
- Do delay the ACA’s so-called “Cadillac tax” on high-cost health plans to 2025.
Below is the summary of the other key provisions (and omissions) from the bills introduced in the House committees:
Much of the Energy and Commerce bill is dedicated to Medicaid reform. Indeed, Committee Chairman Kevin Brady (R-TX) indicated that the bill represents the biggest entitlement reform in the past 20 years.
The specifics of the proposed Medicaid reforms are beyond the scope of this summary, but here are a few highlights: The legislation transitions federal Medicaid funding to a per-capita basis by 2020. It also transfers authority back to the states to make presumptive eligibility determinations, to determine eligibility more frequently, and to engage in innovation. The bill also provides for certain limitations on funding for the population affected by the ACA’s Medicaid expansion, creates $10 billion in “safety net” funding over five years for states that did not expand Medicaid, and addresses several Medicaid eligibility issues.
ACA Insurance Market Reforms Maintained
The bills do not repeal the ACA’s insurance market reform provisions, including the requirements to cover preexisting conditions, cover adult children to age 26, limit out of pocket expenses and provide for guaranteed availability and renewability. They also maintain the ACA’s lifetime and annual limit prohibitions and prohibitions against underwriting based on health status and discrimination based on race, nationality, disability, age and sex.
Unlike the discussion draft released earlier, the bills do not eliminate the ACA’s “essential health benefits” requirement.
Individual Mandate Replaced with Requirement to Maintain Continuous Coverage
The Ways and Means committee bill repeals the ACA’s individual mandate. It also include a provision that penalizes individuals who fail to maintain continuous coverage. Beginning in 2018, individuals who have a gap in creditable coverage of more than 63 continuous days over the prior 12 months will be assessed a 30% premium surcharge by their insurance carrier. The surcharge will be imposed for a 12-month period.
Individual and Employer Shared Responsibility Penalties Eliminated
The penalties under the individual and employer shared responsibility provisions of the ACA are reduced to zero dollars retroactively beginning with the 2016 tax year. Interestingly, the legislation does not specifically repeal the ACA employer and insurer reporting requirements (IRS Forms 1094 and 1095).
Marketplace Premium Tax Credits Repealed and Replaced with Age-Based Credits
The ACA’s income-based premium tax credits and cost-sharing subsidies are repealed under the Ways and Means committee bill after 2019. In the meantime, the bill adjusts the applicable income percentages that individuals qualifying for tax credits must contribute toward premium cost in order to receive a subsidy. As revised, the percentages will be based on age as well as income as a percentage of the Federal Poverty Level.
The bill also allows premium tax credits to be used to purchase plans outside of the public Marketplace in 2018 and 2019. It also eliminates the current limits on repayment of excess advance premium tax credits for 2018 and 2019, requiring that the full amount of any excess advance premium tax credit be repaid.
The bill replaces the ACA premium tax credits with new, age-based, advanceable and refundable tax credits for individual who buy insurance in the individual market beginning in 2020. The annual amount of the credits are as follows:
- Individuals under age 30: $2,000
- Individuals age 30-39: $2,500
- Individuals 40-49: $3,000
- Individuals age 50-59: $3,500; and
- Individuals age 60+: $4,000.
The credit would be capped at $14,000 per family per year and are phased out for individuals with household incomes in excess of $75,000 ($150,000 if married filing jointly). The credits phase out by $100 for every $1,000 in income above the thresholds. The credit amounts and income thresholds will be adjusted annually. If total premiums are less than the total allowed amount of the tax credit, the excess could be contributed to a health savings account (HSA).
The new tax credits would only be available to taxpayers who purchase a plan on the individual market or are enrolled in unsubsidized COBRA coverage, and who are otherwise ineligible for group health coverage (e.g., through an employer-sponsored plan), Medicare, Medicaid or another government-sponsored program.
Elimination of Actuarial Value Requirements
The Ways and Means committee bill eliminates the ACA’s actuarial value and “metal” tier requirements beginning in 2020, instead allowing insurance carriers to market insurance products with actuarial values of less than 60%, more than 90%, and anything in between.
Expansion of Permissible Premium Age Bands
The ACA limits age-based premium variation in the individual and small group market to a 3:1 ratio. The Ways and Means committee bill would expand these permissible age bands to a 5:1 ratio.
Changes to HSA Rules
The maximum allowable amount an individual can contribute to an HSA would be increased under the Ways and Means committee bill to the amount of the applicable out-of-pocket cost for high deductible coverage beginning in 2018. Spouses would each be permitted to make “catch-up” contributions to the same HSA. In addition, individuals would be permitted to receive tax-free reimbursement from an HSA for medical expenses incurred up to 60 days before the HSA is established.
Patient and State Stability Fund Created
The Energy and Commerce committee bill creates a Patient and State Stability Fund, which would provide funding to states to be used for specific enumerated purposes, including reinsurance to stabilize the individual health insurance market, providing assistance to high-risk individuals, reducing the cost of insurance for high-utilizers, promoting preventive, dental, vision, mental health and substance abuse services, and providing assistance to help reduce out-of-pocket costs.
States must apply to receive funding, applications for which will be automatically approved if not rejected within 60 days. In addition, states that do not specifically apply for funding will receive a default amount to be used to reinsure high cost claims.
Miscellaneous Taxes Repealed
The Ways and Means committee bill also repeals a variety of other miscellaneous ACA revenue provisions, including:
- The prohibition against reimbursing the cost of over-the-counter medications by an FSA, HSA, HRA, etc.;
- The tax on indoor tanning equipment;
- The tax on net investment income;
- The $500,000 limit on deductibility of excess amounts paid to insurance executives;
- The Medicare tax on high-income earners;
- The increase in the penalty for distributions from an HSA for non-medical expenses (reducing the penalty from 20% to 10%);
- The health insurance provider tax; and
- The tax on branded prescription drugs.
Given that the committee bills include provisions overhauling the current Medicaid funding scheme and significantly changing the existing revenue framework of the ACA, the committee bills will undoubtedly meet resistance from Congressional Democrats and others. Further, the Congressional Budget Office has not scored the legislation, so the net fiscal impact of the bills remains to be seen. That said, Republican leaders have indicated they intend to proceed quickly, so it will be interesting to see how these bills shape up over the coming days and weeks. As always, we will closely monitor the process and provide you with up-to-the minute developments as they occur.
If you have any questions, please feel free to reach out to us. We are here to help.