We do not typically send client alerts about draft legislation, but the proposed ACA replacement, known as the American Health Care Act (the Act), has been so anticipated that we are breaking our pattern. This alert is a quick summary of the provisions in the current draft of the Act that impact employers. (It does not address other topics—like Medicaid or premium tax credits—that are important to us as individuals and to the country as a whole, but are not necessarily important to employers.)
The draft Act will begin the committee markup process on Wednesday, March 8. The draft Act is in two separate but complementary bills—one is before the House Ways and Means Committee and one is before the House Energy and Commerce Committee. Assuming that the bills pass out of their respective committees, they then will go to the floor of the House for debate and a vote. The Senate could prepare and consider a competing bill. To date, however, Senator McConnell has been signaling that whatever passes the House will be considered by the Senate as part of the budget reconciliation process. (As a reminder, a reconciliation bill can only include matters with an impact on the federal budget. Importantly, reconciliation bills are not subject to filibuster and need only 51 votes to pass.)
We expect that there will be a lot of changes to the draft Act before it is finalized. Those changes might occur in committee, as a result of floor debate and amendments, or in order to improve the cost estimate by the Congressional Budget Office, which has not yet "scored" the draft. This email is intended to explain the starting point—not where it all might end.
Without further ado, here is what we think employers need to know about the draft Act:
New Rules
- The employer mandate/penalties would be repealed, effective retroactively to 1/1/2016. (Employers could still be penalized for 2015.) This means that employers would not be required to offer coverage to avoid a penalty.
- The individual mandate/penalties would be repealed, effective retroactively to 1/1/2016.
- The Cadillac Tax would be delayed until 2025.
- The "extra" Medicare Tax on high-wage earners would be repealed, as of 1/1/2018.
- Health Savings Accounts (HSAs) would change in a number of ways, as of 1/1/2018:
- They could pay for over-the-counter medicine.
- The maximum contribution would increase to match the out-of-pocket maximum on high-deductible health plans (HDHPs).
- If established within 60 days after enrollment in a HDHP, the HSA could pay for expenses incurred after the effective date of HDHP coverage.
- Health Flexible Spending Accounts (FSAs) would change in a number of ways, as of 1/1/2018:
- They would no longer be subject to a cap (currently $2,600).
- They could pay for over-the-counter medicine.
- Employers with Medicare Part D plans would once again be able to deduct portions of their Medicare subsidy.
- Special information for small employers:
- The Small Business Tax Credit would be repealed, effective 1/1/2020.
- Small group policies would be able to charge an enhanced premium (130% of normal) to new enrollees who had a coverage gap of 63 days or more during the 12 months prior to enrollment. The enhanced premium could be charged for no more than 12 months. This rule would be effective for special enrollments during 2018 and annual enrollments for policy years beginning in 2019.
Unchanged
- The tax treatment of employer-sponsored group health plans would not change.
- Employer reporting would still be required. It might change in some specifics, but it is still needed to administer the premium tax credits for individuals.
- Summaries of Benefits and Coverage (SBCs) would still be required.
- Insured plans would still have to be included the essential health benefits.
- Employer plans would still have to include first-dollar preventive care benefits and coverage for children to age 26.
- Annual limits on essential health benefits would still not be permitted.
- Lifetime limits would still not be permitted.
- Taking a pre-existing condition into account would still not be permitted.
If you have questions concerning the above, please contact the authors or any member of the Employee Benefits and Executive Compensation Practice Group.