August 21, 2017

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Affordable Care Act Replacement Bills Encounter Beltway Traffic

Since its enactment in 2010, Republicans in Congress have made numerous attempts to repeal the Affordable Care Act ("ACA"), with little success beyond modest tweaks that garnered bipartisan support (such as delaying the "Cadillac Tax"). With Republicans in control of both houses of Congress and the White House, comprehensive changes are a given, though the substance and timing of the changes remain open questions.

Executive Order

Hours after taking office, President Trump signed an executive order ("Order") declaring the prompt repeal of the ACA to be the policy of his Administration and directing agencies and department heads to exercise all available authority to waive, defer, or delay implementation of ACA provisions that would impose a fiscal burden on States or would impose taxes, penalties and regulatory burdens on individuals and others (likely including employers, though not specifically mentioned), to the fullest extent permitted by law. While the Order's impact on enforcement of the ACA is unclear, it sends a clear message regarding President Trump's agenda with respect to the ACA.  

Congressional Initiatives 

Congress has already taken steps toward repealing key aspects of the ACA through the budgetary reconciliation process, which is not subject to filibuster in the Senate. Congressional Republicans have also proposed at least seven replacement plans, which hint at what the ACA's ultimate replacement may look like. While the plans differ in many respects, many share the following key elements: 

  • Replace premium subsidies with universally available tax credits

  • Expand the role of health savings accounts ("HSAs")

  • Allow the sale of health insurance across state lines 

  • Eliminate the individual and employer mandates 

  • Phase-out or completely eliminate Medicaid expansion

  • Repeal ACA related taxes and penalties

  • Preserve popular features of the ACA, including:

    • prohibition on preexisting conditions (likely through a creditable coverage concept similar to that applicable to group health plans prior to the ACA)

    • no lifetime limits on coverage, and

    • coverage of dependent children until age 26

Although Republicans have not reached consensus on how to proceed, particularly with respect to funding the cost of an ACA replacement, many believe that a cap on the employee exclusion for high-cost employer-provided health insurance will be key to funding the new law. 

Timing and Interim Tweaks

Republicans in Congress aim to have a replacement bill ready by the end of the first quarter of 2017, but in a Fox News interview on February 5th during the Superbowl pregame show, President Trump conceded that replacing the ACA is "very complicated" and that it may not be complete until 2018. In the meantime, changes have already been made to some provisions of the law. 

As noted above, the "Cadillac Tax" on high-cost health plans was delayed until 2020. On December 13, 2016, President Obama signed into law the "21st Century Cures Act," which, among other things, allows small employers (those with fewer than 50 employees) to offer qualified small employer health reimbursement arrangements (or "QSEHRAs") without being subject to catastrophic tax penalties for failure to satisfy ACA requirements for group health plans (such penalties can reach $36,500 per year per covered employee). This is welcome relief for small employers struggling to find an affordable way to help their employees obtain health coverage without running afoul of the ACA's market reform restrictions. This prohibition remains in effect for those employers who do not meet QSEHRA requirements.

Replacing the ACA will take time and there will likely be a transition period. The Executive Order does not repeal the ACA, which remains the law of the land. Therefore, employers, individuals and other entities impacted by the ACA should continue to comply with all aspects of the ACA until guidance is issued stating otherwise. 

© 2017 Jones Walker LLP

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About this Author

Timothy P. Brechtel, Jones Walker, qualified retirement plans lawyer, employee stock ownership attorney
Partner

Tim Brechtel began his career with the national accounting firm PricewaterhouseCoopers. His current practice focuses on assisting employers with establishing, administering, merging, and terminating qualified retirement plans, such as 401(k) plans and employee stock ownership plans (ESOPs), as well as nonqualified deferred compensation arrangements under Code Section 409A, health plans, cafeteria plans, severance plans, separation agreements, health savings accounts, flexible spending accounts, transportation, and other fringe benefit plans. His retirement plan...

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Associate

Ricardo X. Carlo is an associate in the firm's Tax & Estates Practice Group and practices from the firm's New Orleans office. His practice focuses primarily on employee benefits and executive compensation. Mr. Carlo is a 2003 graduate of the Inter American University of Puerto Rico School of Law, where he received his juris doctor degree. In 2010, he received his LL.M. in Taxation from Georgetown University Law Center. Mr. Carlo received his Bachelor of Science in Marketing, from Florida State University in 1998. He is admitted to practice in Puerto Rico, and is fluent in both Spanish and English.

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