Eye on Reform: House Passes the American Health Care Act of 2017 (H.R. 1628)

On Thursday, May 4, the U.S. House of Representatives passed the American Health Care Act of 2017 (“AHCA”) by a vote of 217-213, mostly along party lines. The passage of the AHCA is just the first step in the current Administration’s plan to repeal and replace the Affordable Care Act (“ACA”), which remains the law of the land today.

The Senate will now take up the task of passing its version of healthcare reform and, in fact, has indicated that it will write its own proposal. Undoubtedly, differences will emerge between the House and Senate versions of the bill, and a Conference Committee will eventually develop a plan that combines elements of both bills.

The following is a brief summary of how the AHCA provisions included in the House bill could impact you:

  • Beginning in 2019, states may seek waivers allowing individuals to be charged premiums based on their health status rating if they have not had continuous coverage and other requirements are met.
  • States may seek a waiver of elements of the essential health benefits (“EHBs”) package beginning in 2020, potentially giving insurers more flexibility to design and offer a wider array of benefit plans for the individual and small business group markets. These waivers would be allowed under limited circumstances.
  • The penalties under the individual and employer shared responsibility mandates would be reduced to zero retroactive to 2016. However, the reporting requirements under IRC Sections 6055 and 6056 (Forms 1094 and 1095) would remain. It seems possible that the Secretary of the Treasury may have discretion to not enforce these requirements as the reporting elements become less relevant at a later date.
  • It seems plausible that employers would have more flexibility to offer and design medical benefit plans without having to follow the strict ACA “full-time employee” and coverage/affordability rules, as no penalties will be assessed for failure to offer minimum value/affordable coverage to ACA-defined full-time employees.
  • An individual who is eligible for employer-sponsored coverage would not qualify for premium assistance under the AHCA when purchasing a Qualified Health Plan in the individual market, regardless of whether the coverage meets minimum value and/or affordability standards. The number of months an employee is eligible for group coverage could easily be reported on Form W-2.
  • Implementation of the Cadillac Tax (40% excise tax on high value health plans), initially delayed until 2020 in prior legislation, will be further delayed until 2026.
  • Effective 2017, over-the-counter medications could once again be paid from tax-advantaged accounts, such as health flexible spending accounts (“FSAs”), health reimbursement arrangements (“HRAs”) and health savings accounts (“HSAs”), without the need for a prescription.
  • The health FSA limit (currently $2,600) would be removed beginning with taxable years after December 31, 2016.
  • The tax-free amount that individuals may contribute to an HSA would increase to the annual out-of-pocket limit for HSAs. For 2017, this would be $6,550 and $13,100 for individual and family coverage, respectively.
  • The bill allows spouses who are age 55 or older to each make catch-up contributions to a single HSA beginning in 2018 and permits expenses to be paid from an HSA prior to the account being established, if the taxpayer establishes the HSA within 60 days of being enrolled in a high deductible health plan. Historically, individuals needed to have separate HSAs in order to each make catch-up contributions.
  • When HSA distributions are used to pay for expenses other than qualified medical expenses, the penalty will be lowered to 10% from the current 20% rate.
  • The 3.8% Net Investment Income Tax would be repealed beginning with 2017.
  • The Additional Medicare tax (.9%) that generally applies to income in excess of $200,000 ($250,000 for joint filers) will be eliminated in 2023.
  • A variety of other taxes implemented under the ACA, such as those for health insurers, tanning services, and medical devices, would all be repealed.
  • Retiree drug subsidies would once again be deductible as a business expense beginning 2017.
  • Insurers could increase the current premium ratio adjustment between younger and older participants from (3:1) to (5:1) in the individual and small group markets to better reflect demographic users of healthcare services. The impact would be to shift costs to older enrollees and lower costs for younger enrollees. This 5:1 ratio may be further adjusted beginning in 2018, based on waivers requested by the states.

The passage of this bill gives everyone the most concrete information yet about what could replace the ACA, which gives employers and individuals more to work with than they’ve had before. While this bill will likely go through many changes in the Senate, many provisions are likely to make it to the final version, because they have broad Republican support.

If there are any points you’re particularly interested in, or you’re curious about which provisions are more likely to hold up than others, call Deb Walker, CPA, National Director of Compensation and Benefits for Cherry Bekaert. She’s there for you, if you want to start a conversation about what you should prepare for and for an analysis of how the new provisions could affect you financially.

Check in for updates and insights as the AHCA continues to make its way through Congress. We’ll keep you informed about important developments.