On Monday, the GOP introduced the highly anticipated American Health Care Act (AHCA). Instead of completely dismantling former President Barack Obama’s landmark legislation, the AHCA repealed former’s mandates and funding sources (i.e. taxes), and focuses on expanding health insurance options for those that felt that their choices were limited.j
Last month, we laid out likely scenarios that the GOP would present in an effort to repeal and replace the Patient Protection and Affordable Care Act (ACA). Our predictions summarized the key points within “The Patient Freedom Act,” sponsored in January by Senators Susan Collins (R-Maine) and Bill Cassidy (R-Louisiana), in conjunction with the tenants of the “Better Way” vision put forth by Rep. Paul Ryan (R-Wisconsin). Both of these legislative proposals, along with similar work developed by Tom Price, are reflected in many aspects of the AHCA.
Below is a summary of the central ideas of the AHCA. While positioned as a “Repeal and Replace” effort, the proposed law does leave certain aspects of the Affordable Care Act untouched. We capture the summary in each area below under the headings Repealed, Replaced, and Remains.
Say goodbye to the mandates
- Repealed: Individuals will no longer be required to buy an insurance policy, and employers (with over 50 full-time equivalent employees) are no longer mandated to offer affordable coverage, that meets minimum value.
- Replaced: “Continuous Coverage” is required to receive standard market premiums. Individuals who forego health insurance for greater than 63 days can be charged up to a 30% increase to their premiums for a period of up to 12 months.
- Remains: Nothing remains of these major components to the ACA - providing significant relief to employers in their tracking and administration of the Section 4980H requirements.
Product enhancements, market stabilization, and consumer coverage protections.
- Repealed: Small Group and Individual market products will sunset the actuarial-value defined “metal tiers”, effective December 31, 2019. This would mark the end of the Bronze, Silver, Gold, and Platinum plan design designations.
- Replaced: Age rated premium caps for individual and small group premiums will be increased from 3:1 to 5:1. A $100 billion fund will be created and dispersed over a decade to help states stabilize insurance markets, maintain preventative services, and pay for those in high-risk pools.
- Remains: Essential Health Benefits, as defined in the ACA, remain mandatory for all individual and small group plans. Caps on deductibles and out of pocket limits also were left intact. Pre-existing conditions still have to be covered by insurers. Dependents can still remain on their parents’ policy until the age of 26. Caps and guidance on insurer premium rating factors - such geographic boundaries (community rating areas), age band structures, and tobacco use permitted adjustments, have not been changed.
Nearly all taxes from the ACA will be repealed.
- Repealed: 14 out of the 21 taxes that the ACA introduced will be walked back. PCORI and Reinsurance Fees. Net Investment Income Tax. Medical Device Excise Tax. Additional Medicare Tax. Branded Prescription Drug Manufacturers and Importers Tax. Health Insurance Providers Tax. Indoor Tanning Services Tax.
- Replaced: No new taxes were introduced. Households will also now be able to deduct medical expenses over 7.5% of their income (back to the levels in place prior to the 10% introduced by ACA).
- Remains: The ACA’s high-cost plan tax (HCPT), known to many as the “Cadillac Tax,” is a 40% tax on employer plans which exceed $10,200 in premiums (a year) for individuals and $27,500 for families. Many groups and lobbies were against this tax, and it has become a common punching bag from both sides of the aisle. It was scheduled to take effect in 2020. Despite aggressive lobbying efforts from industry organizations in the last 60-90 days, the AHCA did not remove this tax. Rather, it extended the effective date to January 1, 2025.
Favorable Treatment to Account Based Health Plans
- Repealed: The annual FSA contribution limit of $2,500 is removed.
- Replaced: HSA early distribution penalty tax will be lowered from 20% to 10% (pre-ACA rate). Furthermore, the maximum contribution limit for HSAs will be increased to match the deductible and out-of-pocket limits. This means that the basic limit to contribute tax-free will be $6,550 / year for individuals and $13,100 for families. Spouses will now be allowed to contribute catch-up contributions to HSAs. Over-the-counter medications can also be purchased pre-tax with HSA dollars.
- Remains: There was little in the ACA to support and strengthen Account Based Health Plans (ABHP). The GOP has taken the opportunity with the AHCA to promote and strengthen these options - a welcome advantage for employers offering these plan structures.
Entitlement Reform for Medicaid.
- Repealed: Medicaid expansion will freeze in 2020. Minimum Essential Coverage (MEC) is no longer required for these plans, and states have the ability to determine what benefits will be offered - they are not required to cover Essential Health Benefits.
- Replaced: States who opted to expand Medicaid would receive funding on a per-capita basis for beneficiaries through December 31st, 2019.
- Remains: Enrollees would continue benefit as long as it is continuous (no break in coverage greater than one month).
Modifications and Sunset to Advanced Premium Tax Credits (“Subsidies”)
- Repealed: The current formula and mechanic for Advanced Premium Tax Credits (APTC) is set to expire on December 31st, 2019.
- Replaced: The new formula modification combines means-tested and age-adjusted tax credits into a single, combined calculation, which will expire with the APTC (table and example below):
AHCA (New) and ACA (Old) Comparison Example
Individual or Oldest Spouse in Joint Filing
$56,000 (274% of FPL)
|Premium Percentage Cap Under AHCA (New)||8.22%|
|Premium Percentage Cap Under ACA (Old)||9.04%|
|Annual Premium Cost for 2nd Lowest Silver*||$11,107.92|
|Annual Premium Cap Under AHCA (New)||$4,603.20|
|Annual Premium Cap Under ACA (Old)||$5,062.40|
|Amount of Flat Tax Credit Under AHCA (New)||$6,486.37|
|Amount of Advanced Premium Tax Credit Under ACA (Old)||$6,048.00|
*Estimated assuming $925.66 per month for second lowest silver plan; this varies by state/geography
- Replaced (continued): Under the ACA, plan premium cost assistance was determined by income, by comparing to the Federal Poverty level and factoring the number of dependents in the household. The AHCA restructures this system by shifting to flat tax credits (as shown below).
|Age||Tax Credit per Year|
|Up to Age 29||$2,000|
|Over Age 59||$4,000|
These credits grow over time (per year) at inflation (CPI) plus 1%. Credits are available in full to individuals earning up to $75,000 per year, or $150,000 for those filing jointly, and are reduced by $100 for every $1,000 in additional income beyond these levels.
|AHCA Flat Tax Credit|
|Individual or Oldest Spouse in Joint Filing||52|
- Remains: the new tax credits are a fundamental departure from the APTC structure under the Affordable Care Act. However, the new structure remains an advanceable payment, that will be audited against tax returns at the end of each year.
Reporting and Administration
- Repealed: Reconciliation rules limit the ability of Congress to repeal current reporting requirements. The proposed regulations call for the Secretary of the Treasury to “phase out” old reporting, as new reporting takes effect.
- Replaced: Eligibility for employer sponsored insurance will remain a determining factor in tax credit eligibility. Therefore, it is possible the IRS will still require forms 1094/1095 - though with modifications to the form and format. However, according to the Ways And Means Chairman Rep. Kevin Brady (R-Texas) they are calling for a “simplified reporting of an offer of coverage on the W-2 by employers.” This is not a legislative mandate - rather, instructions to relevant Department heads.
- Remains: At this point, the requirement for plan sponsors and issuers to furnish a Summary of Benefits and Coverage (SBC) appears to remains in place.
Final & Summary Thoughts - And Key Takeaways for Brokers
- Does Code SixFour believe it will pass, in current form?
- In short, probably not. The viability of this legislation hinges on the perceived and actual fiscal impact - which will be informed in part by the score provided by the Congressional Budget Office. To pass via budget reconciliation (allowing Congress to pass in the Senate by a simple majority) the legislation cannot increase the deficit after its first 10 years in effect. Whether or not this is the case remains to be seen.
- Two House Committees will markup the bill this week, before coming to a vote in the House and Senate. Democrats are clearly against the bill, with Rep. Frank Pallone (D-New Jersey), and Rep. Nancy Pelosi (D-California) vehemently opposing it. Several moderate Republicans have criticized it for the cuts to Medicaid. "We believe Medicaid needs to be reformed, but reform should not come at the cost of disruption in access to health care for our country’s most vulnerable and sickest individuals," Sen. Rob Portman (R-Ohio) wrote to Senate Majority Leader Mitch McConnell (R-Kentucky). Far right Republicans, like Sen. Rand Paul (R-Kentucky) characterize it as Obamacare Lite or Obamacare 2.0. have already expressed concerns about the bill.
- What will my clients ask about?
- Expect some confusion from small group clients, as they try to compare and contrast different plans in the future without the “metal tier” system.
- Changes to reporting requirements will be likely - but are very far out. Clients should be sure to continue their current strategies for compliance with 1094/1095 administration.
- We predict a growing interest in Account Based Health Plans, such as HSAs, FSAs, and HRAs, if the changes proposed in this legislation come to pass.
- We believe the Cadillac Tax will remain an open discussion item, as the law continues to progress through Congress.
Code SixFour empowers benefits brokers to automate their consulting through powerful technology and dynamic content. Build a cloud-based plan library, create customized benefits booklets, analyze "what-if-scenario" modeling, and deploy a variety of other reports and insights. This type of dynamic software is essential in today’s market - where changes to plans, pricing, and regulations in the next twelve months, are all extremely likely.
Invest in your infrastructure and knowledge base now, for better cost-saving measures and better response later. Take a tour of Code SixFour.