We promised to keep you up to date on the GOP majority's promise to repeal and replace the Affordable Care Act (the "ACA"). After reaching agreement on several amendments to the original House bill (described in our previous alert), the House of Representatives passed the American Health Care Act, (the "AHCA") a budget reconciliation bill to repeal and replace the ACA. The first draft of the AHCA, released by House Republicans on March 6th was withdrawn by Speaker Ryan on March 24th due to opposition from the Freedom Caucus, among others. Several significant changes were made to the original bill and it was passed by a narrow margin on May 4th; 217-213.
The fate of the AHCA now rests with the Senate. The media has been reporting that the Senate is likely to draft its own bill as opposed to amending the AHCA. The Senate has a smaller Republican majority and can only afford to lose a few votes to ensure passage but many Republican Senators have expressed disapproval of the AHCA. Senator Collins of Maine has offered an alternative, called the Patient Freedom Act. The Senate Majority leader has formed a "working group." The major controversy of the moment involves the effects of the Medicaid expansion repeal. Alas, the bumpy ride continues.
No one can predict whether the Senate will act before the summer recess or even year-end and if it does act, whether it can craft a bill that will pass both Houses. We don't know which parts of the AHCA, if any, will remain or whether any parts of the AHCA will be effective for the 2018 plan year. Amidst all this uncertainty, employers are designing and preparing their health plans for 2018 open enrollment and health insurers are setting or have already set their rates for next year.
Subject to this uncertainty, below is a brief description of the main provisions in the AHCA as passed by the House of Representatives that impact employer-sponsored health plans:
- Repeal of the employer mandate penalties, effective January 1, 2016.
- Repeal of the individual mandate penalties, effective January 1, 2016.
- Replacement of the individual mandate with a "continuous coverage" requirement. If an individual fails to prove continuous coverage over the prior 12 months, he will be required to pay the insurer (not the Federal government) a 30% premium surcharge, effective for the 2018 plan year.
- The AHCA makes significant changes to eligibility for and the amount of premium tax credits. Under the AHCA, individuals eligible for employer-sponsored health plans may no longer receive a premium tax credit, even if the plan does not provide minimum value or is unaffordable. The unaffordability and minimum value standards of the ACA will no longer apply. The AHCA also expands the availability of premium tax credits for enrollment in health plans outside Exchanges.
- The ACA requirement to provide "Essential Health Benefits" remains but states may request a waiver from the ACA's definition of EHB and create their own definition.
- Delay of the "Cadillac" excise tax on high-cost plans until December 31, 2026, at which point it reappears.
- The AHCA makes a number of changes intended to strengthen and enhance HSAs, and other consumer accounts, beginning in 2018, such as:
- Increasing the maximum HSA contribution limits to equal the sum of the amount of the HSA deductible and out-of-pocket limitation for any year. For 2018, the maximum amount would be at least $6,650 for self-only coverage and $13,100 for family coverage. These amounts will likely increase due to inflation adjustments.
- Permitting both spouses to make "catch-up contributions" to the same HSA.
- Reducing the tax on distributions from HSAs and Archer MSAs for expenses that are not "qualified medical expenses" from 20% to 10% for HSA distributions and 15% for Archer MSA distributions, effective January 1, 2018.
- Reimbursement of health expenses from an HSA established within 60 days of an employee's first date of coverage under a HDHP will be allowed even if the expense was incurred before the date the HSA was established, effective January 1, 2018.
- Over the counter medications will once again be eligible for reimbursement from health FSAs, HSAs, Archer MSAs and HRAs as an excludable medical care expense, effective January 1, 2018
- Repeal of any monetary limit on contributions to health FSAs, effective January 1, 2018.
- For retiree medical plans, employers may again claim a deduction for retiree prescription drug costs subsidized by HHS payments, effective January 1, 2017.
- Provide a lower floor of 5.8% for medical expense deductions, effective 2017.
The AHCA also eliminated several taxes and fees imposed by the ACA. We are likely to see a report from the CBO on the costs of the AHCA early in the week of May 22nd, which may well inform the Senate's deliberation. Some Senators have told the media that the AHCA or its replacement will not receive a quick vote in the Senate.
Stay tuned for Part III as major developments and changes unfold.