As widely reported, the U.S. House of Representatives has passed the American Health Care Act (AHCA), a bill that, if enacted, would make the first major legislative changes to the Affordable Care Act (ACA). Modified to provide states the opportunity to waive certain federal standards, the AHCA gained a narrow majority in the House and now proceeds to the Senate, where its provisions are certain to be the subject of vigorous debate.
The amendments that secured passage through the House would provide states greater flexibility to set coverage requirements in the individual and small group health insurance markets and to allow insurers to set prices based on individual health factors (if they introduce an alternative coverage mechanism, such as a high-risk pool). The AHCA would make a number of other changes that affect employer-sponsored plans:
- The AHCA would eliminate assessments under the employer mandate, which requires employers with at least 50 full-time equivalent employees to provide health insurance coverage to full-time employees or face a penalty. These provisions take effect retroactively to 2016. The mandate itself and related reporting requirements (on Forms 1094 and 1095) are not eliminated, nor are the penalties for failure to furnish or file reports and statements. These matters could be the subject of future legislation or regulatory guidance.
- The Cadillac Tax on high-cost employer-sponsored health coverage would be delayed to 2026, but not eliminated by the AHCA.
- The Additional Medicare Tax of 0.9 percent on high incomes would be eliminated, but not until 2023. Before then, the tax would continue to be withheld on compensation above $200,000.
- There would be various changes in consumer-driven health benefits. The cap on health flexible spending arrangements (FSAs) would be removed; the annual contribution limit on health savings accounts (HSAs) would increase; over-the-counter drugs could again be purchased or reimbursed through FSAs or HSAs; insurance premiums could be paid or reimbursed through HSAs; and the HSA penalty for nonqualified expenditures would revert from 20 percent to the pre-ACA level of 10 percent.
- Retiree drug subsidies would again be deductible as a business expense.
- The AHCA would eliminate the income-based subsidies offered to individuals who purchase coverage through the ACA Marketplace (Health Insurance Exchanges) and replace those subsidies with refundable tax credits. The tax credits would be available to individuals who do not receive health insurance coverage through their employer or a government program, such as Medicare, Medicaid, or the VA. They would be largely age-based and range from $2,000 to $4,000 per individual per year, with a cap of $14,000 per year per family. The tax credits would start to phase out for individuals who earn between $75,000 and $215,000 per year and families who earn between $150,000 and $290,000. This provision of the AHCA would take effect in 2020.
- Insurers would be able to charge older adults up to five times the amount they charge young adults for the same coverage (under current rules, insurers may not charge older adults more than three times the charge for young adults).
- The bill would provide states an allotment of federal money for each Medicaid beneficiary. Alternatively, states could opt to receive the money as a block grant in a lump sum, with fewer federal requirements. The ACA Medicaid expansion would be eliminated with certain grandfathering rules for current recipients.
- The AHCA would require insurers to impose a 30 percent surcharge for one year on any individual who experiences a gap in medical coverage for at least 63 days. States may seek a waiver that could replace this provision with one that allows insurers to charge consumers who have had a gap in coverage based on their health status.
- The bill would provide states with $138 billion over 10 years that could be used for various purposes such as subsidizing premiums, providing coverage to people with pre-existing conditions, and paying for mental health and substance use disorders.
- The AHCA passed the House under budget reconciliation rules, which limits debate in the Senate and allows for enactment with a simple majority rather than the usual 60-vote threshold. Among other issues, the Senate parliamentarian will likely scrutinize the bill to determine if all of its provisions qualify under budget reconciliation rules. The Senate also may take into account reports from the Congressional Budget Office (CBO) on the revised bill. The House did not wait for new scoring from the CBO, which projected that the original bill would result in a $337 billion savings for the federal government over 10 years, but would eventually cause 24 million Americans to lose health coverage.
With the change in administration, changes are expected for the ACA and a range of other laws and regulations affecting health care and health benefits. Ballard Spahr attorneys established the Health Care Reform Dashboard to monitor and analyze legislative and regulatory developments. We will continue to follow developments in this area as they emerge. Changes may come to the Dashboard, but it will continue to serve as an online resource center for news and analysis on developments regarding the ACA and health care reforms that follow.
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