American Health Care Act (Phase 1) Has Arrived: How Proposal Will Impact Employer Health Plans
Early last week, House Republicans released long-awaited legislation designed to “repeal and replace” the Affordable Care Act (ACA), which had been a central campaign promise of President Donald Trump. The bill, titled the American Health Care Act (AHCA), does not repeal the ACA as a whole but instead dismantles many of its central provisions, including the mandates and many of the taxes. The bill was released in two parts by the House Committee on Ways and Means and the House Energy and Commerce Committee. The proposed legislation passed the mark-up process in both Committees last week and is now subject to consideration by the House Budget Committee.
The AHCA includes several provisions that are central hallmarks of the Republicans’ proposed framework on health care. Key provisions that will impact employers and individual employees include the following:
Penalties for both large employers who fail to provide coverage for full-time employees (the “employer mandate”) and individuals who fail to obtain coverage (the “individual mandate”) would be repealed retroactively for months beginning after December 31, 2015.
The 40 percent “Cadillac Tax” on high-cost employer-sponsored group health plans would be suspended for years 2020 – 2024, but it would still apply for years beginning after December 31, 2024.
Comment: Under these provisions, the AHCA would eliminate the need for employers to determine “Full-Time Employee” status under the ACA rules for employees working an average of at least 30 hours per week and the requirement to extend eligibility for coverage to such Full-Time Employees. If adopted, plan sponsors may want to consider plan design modifications to reflect these changes. Even if these provisions are adopted into law, we expect that some version of the current ACA reporting requirements would be retained, so that when (or if) the Cadillac Tax is ultimately implemented, the IRS is able to identify who owes this tax.
ACA premium tax credits for individuals would be increased for young adults and decreased for older adults for years 2018-2019, and such credits could be applied to purchase coverage in qualified health plans sold outside of an exchange or plans that provide only catastrophic coverage. These tax credits would be eliminated in 2020, when flat tax credits would be applied, with amounts ranging from $2,000 – $4,000 (to be indexed for inflation) per individual per year depending on age (up to a limit of $14,000 for a family). These tax credits would be phased out for individuals earning income above $75,000 ($150,000 for a married couple filing jointly). Cost-sharing subsidies under the ACA would also be eliminated.
Contribution limits to health flexible spending accounts (FSAs) would be repealed for taxable years beginning after December 31, 2017. The current limit is $2,600 (indexed for inflation).
Contribution limits to health savings accounts (HSAs) would be increased to the limit on out-of-pocket cost sharing under qualified high deductible health plans (for 2017, $6,550 for self-only coverage and $13,100 for family coverage, indexed for inflation). Excess premium tax credits could be contributed to an HSA and would not count against the contribution limit. With respect to “catch-up contributions” for individuals aged 55 or older, spouses would each be able to make a catch-up contribution to the same HSA of up to $1,000 per spouse.
Starting in 2018, over-the-counter medications could be reimbursed under tax-advantaged health care accounts, such as health FSAs and HSAs.
Comment: If adopted into law, plan sponsors with tax-advantaged health care accounts, such as health FSAs and HSAs, will need to examine plan documents, summary plan descriptions and enrollment documents to determine whether amendments will be needed to reflect these changes.
Additionally, the AHCA includes numerous provisions that will impact the broader health care industry. For example, the bill provides for establishment of a “Patient and State Stability Fund” with federal funding of $100 billion over nine years. This program would give states flexibility in funding health insurance programs to fit their needs based on state demographics – e.g., funding a high-risk pool to provide financial assistance to individuals with costly health issues seeking coverage on the individual market, promoting access to preventive services, and providing cost-sharing assistance. Furthermore, the bill includes changes to the Medicaid program which could, in turn, have an impact on other aspects of health care coverage, cost, and related matters within a state.
Also, for insurance coverage in the individual and small group markets, a late enrollment penalty in the amount of a 30 percent premium surcharge would be imposed for individuals buying individual (i.e., non-group) coverage who experience a lapse in coverage of more than 63 days in the last 12 months. This look-back process would begin with plan year 2019 (or in the case of special enrollment period applicants, plan year 2018) and would apply during the plan year in which the individual enrolls in the new coverage. This penalty is meant to incentivize individuals to maintain continuous health insurance coverage.
Comment: Note that the premium surcharge requirement would apply to insurers – not to private health plans – and would be applicable only to non-group insurance coverage issued in the individual and small group markets.
The AHCA would make no changes to a number of fundamental ACA provisions including:
Prohibition on insurers refusing to cover an individual based on a pre-existing condition
Requirement that dependent coverage be extended to age 26
Requirement that insurers offer certain essential health benefits, including preventive services, emergency care services, and maternity care
Prohibition on annual and lifetime coverage maximum
Notably, the AHCA does not include a provision permitting the sale of insurance policies across state lines, which was central to President Trump’s goal of increasing market competition. Addressing this, President Trump has indicated that the Republican proposal on health care will be rolled out in three phases, with this provision included in a later phase.
While the AHCA provides some glimpse at what could be the future health care law, it is important to remember that the bill is in its beginning stages. Provisions of the bill will likely be challenged, as members of both political parties have already spoken out against certain components. Additionally, the Congressional Budget Office has yet to “score” the bill by evaluating its costs and quantifying the number of uninsured individuals.
Because the ACA remains current law for now, we encourage employers to stay the course and continue to comply with its requirements.