Executive Summary

Republican ACA repeal efforts advanced in the House yesterday (March 6, 2017) as GOP leadership officially unveiled its newest proposal. Although that proposal could be voted on at the committee level as early as this week, much work remains and a definitive pronouncement of what would be included in the final legislation is still unavailable. The speed of this process is a concern from critics and supporters alike. Some ACA-opponents complain that, given President Trump’s promises, ACA repeal has not materialized quickly enough, while others note that the GOP is attempting to revamp a law within a two month period that took Democrats more than two years to develop and six years to implement.

The Republican proposal ultimately relies on the budget reconciliation process, which only requires a bare Senate majority of 51, for enactment.

Early Details

ACA Mandates (Employer and Individual):

A central provision of the repeal proposal would convert the ACA’s employer mandate penalties from current monetary levels to zero dollars retroactive to January 1, 2016. Changing the penalty liability to zero has the effect of eliminating the employer mandate even though the underlying ACA requirement technically stays in place. The individual penalty is similarly zeroed out, but there are new burdens and potential financial exposure that could attach to anyone choosing to remain uninsured.

Tax Exclusion:

Many employers will be relieved to note that the proposal (for now) does not include changes to the tax exclusion for employer-provided plans. (See our recent HUB International Client Bulletin, linked below.) Having noted that, many analysts caution that the exclusion topic may resurface at any time given revenue considerations.

Cadillac Tax:

Also noteworthy on the revenue front is a provision further postponing the Cadillac Tax from 2020 to 2025. No threshold adjustments have been included in the proposal and so expect most group health plans to be subject to the excise tax in 2025.

Other Key Elements

Tax credits for health coverage purchases:

Creates new tax credits for payment of health coverage that is reduced by 10% for individuals with incomes above $75,000 and households earning more than $150,000, if the individual does not have access to employer-sponsored coverage. Access to tax credits is phased out at higher income levels. The proposed refundable tax credits would be based on an individual’s age rather than household income as described below:

  • $2,000 in the case of an individual who has not attained age 30 as of the beginning of such taxable year,
  • $2,500 in the case of an individual who has attained age 30 but who has not attained age 40 as of such time,
  • $3,000 in the case of an individual who has attained age 40 but who has not attained age 50 as of such time,
  • $3,500 in the case of an individual who has attained age 50 but who has not attained age 60 as of such time, and
  • $4,000 in the case of an individual who has attained age 60 as of such time.

The maximum allowable refundable tax credit cannot exceed $14,000 per year for any taxpayer. Advanced tax credits are available to low-income individuals to purchase coverage from an Exchange until January 1, 2020, with some amendments.

Medicaid changes:

ACA’s Medicaid expansion would cap federal financial commitments. States would be subject to “block grants” (capped payment) based on Medicaid enrollment.

ACA Reporting obligations:

Employer reporting (e.g. Form 1094/1095) requirements will linger as tax credits hinge on access to offers of employer health coverage. Industry experts suggest that reporting could be simplified through regulatory procedures.

Amendments to health savings accounts (HSAs):

Effective January 1, 2018, contributions to HSA accounts will not be based on the IRS statutory limits, but rather on the underlying HDHPs’ deductible and out-of-pocket limits.

Repeal of certain ACA taxes:

The following caps and taxes are repealed as of the dates described below.

  • Effective January 1, 2020 - PCORI, Health Insurance Tax, Exchange surcharge in small group coverage.
  • Effective January 1, 2018 - Medical device manufacturer tax.
  • Effective January 1, 2018 - Deductibility of health expenses decreases from 10% to 7.5%.
  • Effective January 1, 2018 - HSA excise tax penalty will revert to 10% from 20% for non-qualified distributions.
  • Effective January 1, 2018 - Repeals annual limits on health FSAs, hospital tax, tanning salon tax, Medicare tax for high-income earners, and the restriction from reimbursing over-the-counter medications from an HSA, or health FSA.

HUB International is carefully monitoring developments of this very fluid situation and will communicate further as necessary to keep our clients informed. Meanwhile we ask that you contact your HUB advisor should you have specific questions.

Helpful Links

Republican Proposal

Client Bulletin: Congress Weighs Eliminating Tax Exclusion for Employment-based Health Benefits