The American Health Care Act: What you need to know

For those following health care reform closely, the Affordable Care Act (ACA) replacement plan that Republicans unveiled last night doesn’t contain many major surprises. The American Health Care Act, as it’s being called, is more repeal than it is replace. 

The bill would officially go into effect on Jan. 1, 2018, but it includes staggered phase-out dates for various provisions of the ACA, most notably Medicaid expansion, and also suggests a few significant retroactive effective dates, mainly related to the individual and employer mandates. 

That said, this is the beginning of a long process, and the proposed law put forth by Republicans is highly subject to change before it ever crosses the President’s desk for signature. For now, here are the key pieces it entails: 

Individual mandate

The proposed law would reduce the penalty for failing to maintain minimum essential coverage to $0. This would be retroactively applied as of Jan. 1, 2016, which would essentially repeal the individual mandate, and ensure individuals would not pay a penalty for not having health care coverage in 2016.

Continuous coverage

Beginning in 2019, the American Health Care Act would apply a 30 percent premium surcharge to individuals that enroll in a health plan and have a gap in coverage of 63 days or longer. This provision is aimed at preventing adverse selection in the market, and punishes those individuals that wait to purchase health care coverage until they get sick.

Underwriting ratios

The proposed law would adjust current underwriting ratios (1 to 3 under the ACA) to a new ratio of 1 to 5. This will ultimately drive down premiums for younger individuals, and increase premiums for older citizens, especially those with health issues. 

Patient protections

Certain fan-favorite provisions of the ACA, such as the dependent coverage age extension, the ban on annual and lifetime maximum limits, and the prohibition on pre-existing condition exclusions, would remain in place under the proposed plan. This comes as no surprise since Republicans have been publicly stating for months that they would keep these types of provisions. 

ACA premium tax credits (i.e., subsidies)

The American Health Care Act would end ACA premium tax credits in 2020.

The bill authorizes the collection of premium tax credits or excess premium tax credits that shouldn’t have been given to individuals while the ACA credits were in existence. Reconciling this would be done using individual tax filings and the 1095 A, B and C series forms, but presents some administrative challenges.

In addition, the proposed law would allow current credits (until they were phased out) to be used on certain private insurance plans as well as catastrophic plans outside of the exchanges.

Employer mandate

The proposed law would eliminate the penalty for failing to provide minimum essential coverage to applicable employees. This would be retroactively applied to Jan. 1, 2016, meaning applicable large employers wouldn’t be required to pay penalties if they didn’t comply with the Employer Shared Responsibility provisions of the ACA in 2016.

New tax credits

The American Health Care Act would create an advanceable, refundable tax credit for the purchase of state-approved health insurance similar to current ACA tax credits. To be eligible, an individual must not have access to government health insurance programs (i.e., Medicaid or Medicare) or an offer from any employer. The individual must also be a citizen -- a national or qualified alien of the United States -- and not incarcerated.

The credits would be adjusted by age:

  • Under age 30: $2,000
  • 30 to 39: $2,500
  • 40 to 49: $3,000
  • 50 to 59: $3,500
  • Over age 60: $4,000

The credits would increase based on family size and are capped at $14,000. They would grow over time by an adjusted consumer price index, and would be available in full to those making $75,000 per year or less ($150,000 for joint filers). The credits would phase out by $100 for every $1,000 in incomes above those thresholds.

The provision also calls for simplified reporting of an offer of coverage on the W-2 by employers. Reconciliation rules limit the ability of Congress to repeal the current reporting, but when the current reporting becomes redundant and replaced by the reporting mechanism called for in the new bill, the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes.

 Employer reporting

Employer reporting requirements are not addressed by a specific provision of the American Health Care Act. But, as noted above, the section on new tax credits requires employers to comply with simplified reporting related to offers of coverage on the W-2 form. The omission of a dedicated provision related to current reporting requirements indicates that they are still in effect. Therefore employers should continue to comply until directed otherwise by regulation.

 Medicaid

The proposed law would roll back Medicaid expansion, but not until 2020, at which point enrollments would freeze and individuals would drop out of coverage based on income assessment. Federal funding would be provided to states capped at a per capita basis in 2020. At this time, states wouldn’t have to provide the same Essential Health Benefits in the Medicaid program, which would give them flexibility in designing the benefits provided by Medicaid.

Health Savings Accounts (HSAs)

 The contribution limit for HSAs would be increased under Republicans’ plan -- to at least $6,550 in the case of self-only coverage, and $13,100 in the case of family coverage -- beginning in 2018. Older Americans would be able to make catch-up contributions similar to qualified retirement plans. Additionally, qualified medical expenses would count as prohibited distributions even when made before setup of an HSA is complete.

High risk pools

The proposed law would empower states to create high risk pools to help provide coverage to unhealthy individuals and individuals with pre-existing conditions.

Cadillac Plan Tax

The American Health Care Act doesn’t eliminate the Cadillac Plan Tax, but it does delay its effective date until Jan. 1, 2025.

Income threshold for medical expense deduction

The new plan would reduce the income threshold for the medical expense deduction from 10 percent to 7.5 percent. 

Other tax provisions

The proposed law would repeal several other tax provisions found within the ACA, such as:

  • Medical Device Tax
  • Tanning Tax
  • Additional tax on distributions from an HSA for non-qualified medical expenses
  • Medicare Tax Increase

Republicans have a long and arduous road ahead of them before they can successfully repeal and replace Obamacare, so for now, employers should stay the course and continue fulfilling their current health care reporting and compliance obligations.

The American Health Care Act provides a clear picture of what Republicans would like the health care system to look like moving forward. However, if the Congressional Budget Office’s analysis indicates that fewer Americans would receive coverage under the new plan or that coverage would become more expensive than under the ACA, they’ll have a difficult time pushing pieces of this reform forward.  

Tags: American Health Care Act