On Monday, March 6, the House of Representatives released the details of the American Health Care Act (“AHCA”)— the proposed first step to repealing and replacing the Affordable Care Act (“ACA”). Since that time, the AHCA has been the subject of news media reports, press conferences, and political debate, both positive and negative. Most of the discussions rage around the more political aspects of the bill, like the temporary defunding of Planned Parenthood, the retention (in a revised form) of individual premium tax credits, and the impact on participants in the Health Insurance Marketplaces.
At the outset, it is important not to get too far ahead of ourselves in terms of analyzing impact. To quote Schoolhouse Rock, at this point the AHCA is “just a bill;” it does not yet have force of law, and changes are inevitable. In the White House press briefing on March 7, Dr. Tom Price, the former Congressman and recently confirmed Secretary of Health and Human Services, outlined what the administration envisions to be a three-phase process. Because the AHCA’s passage is sought through a Congressional process called reconciliation, its provisions are limited to those that impact either revenue or spending— meaning it’s only a first step. Phase two involves new regulatory and subregulatory guidance through HHS, IRS, and DOL, the federal departments with responsibility to administer the ACA. Finally, phase three will require additional legislative action by Congress; this is where more comprehensive repeal and changes such as purchasing insurance across state lines would be sought.
Lost in much of the public discussion about process and politics is the potential impact of the proposed bill on employers (by far the largest source of providing healthcare coverage in the country). In that regard, let’s take a look at five beneficial aspects of the bill:
- Repeal of the tax penalties related to the employer mandate. The ACA requires that all employers with 50 or more full-time employees offer “affordable” and “adequate” health coverage or pay significant tax penalties. Moreover, the ACA defines a full-time employee as one who works 30 hours a week. For many, this exponentially expanded the workforce to whom employers had to offer coverage, as well as the overall cost and benefits provided. While the AHCA technically does not repeal this mandate (this could come at a later time), employers will no longer be penalized for failure to comply. This repeal of penalties is retroactive to the 2016 tax year, so employers who may have been out of compliance will not face negative tax consequences.
- A delay of the Cadillac Tax until 2025. The Cadillac Tax, a 40% excise tax on insurers and employers offering so-called high cost coverage, is delayed until 2025. The Cadillac Tax has been widely criticized by both employer and union groups, and the delay will certainly be welcomed by constituents on both sides of the aisle.
- Expansion of tax savings vehicles, such as individual health savings accounts and health flexible spending accounts. Effective for the 2018 tax year, the AHCA amends the Internal Revenue Code to allow tax-free contributions to individual HSAs up to the out-of-pocket maximums under a qualified high deductible health plan (currently $6,550 for self-only coverage and $13,100 for family coverage). This is nearly double the contributions currently permitted. The current prohibition on using HSAs for over-the-counter medications would also be repealed, expanding how HSA dollars can be spent. For FSAs, the ACA-imposed limitation on nontaxable contributions (currently $2,600) would be eliminated. Therefore, with the expansion of these tax preferred accounts, employers would see direct savings in required FICA and FUTA contributions. In addition, the adoption of consumer-driven benefit strategies, such as high deductible health plans, would become more attractive and potentially create savings in overall healthcare costs.
- Elimination of taxes on medical devices and health insurers. The AHCA also repeals two key ACA tax provisions that should have a positive impact on employer plans moving forward. Specifically, the 2.3% Medical Device Tax is repealed, as is the ACA’s health insurer tax. Both of these provisions were suspended for the 2017 tax year, set to return in 2018. These taxes have a direct impact on group health insurance premiums and self-funded claims costs. Their elimination will have a positive impact on employer healthcare costs.
- A likely end to the ACA’s complex and burdensome employer reporting requirements. Although the AHCA does not directly address one of the ACA’s most burdensome provisions—Section 6055 and 6056 reporting— most industry experts anticipate that these troublesome reporting requirements will be suspended through regulatory action. With the elimination of all tax penalties related to the employer and individual mandates, the need for reporting is largely eliminated. This move would be consistent with President Trump’s first executive action, directing the departments to ease the ACA’s administrative burdens. It is fair to say that ACA reporting is universally viewed by employers as time consuming and costly, so elimination of this requirement would almost certainly be loudly applauded.
Again, it is important to reiterate that the AHCA is not a done deal. The political process is just beginning and much is likely to change. However, to the extent these changes are on the horizon for employers, we certainly have new things to consider in preparing benefits and business strategies moving forward.
Please keep an eye out for registration to open for Fresh Perspectives: Navigating the Future of Health Care on April 11, where a more in-depth discussion will be led by Katy Stowers, Managing Director & General Counsel, and Ryan Miller, Advisor.