ACA Replacement Bill Announced
Update: On March 24, 2017, House Republicans pulled the American Health Care Act (AHCA). It is unclear whether the bill might be rescheduled, and if so, when. You can expect updates in the future, but in the meantime, the failed legislation provides information about potential future Republican health care reform.
On March 6, 2017, Republican leadership in the U.S. House of Representatives issued two bills—collectively known as the American Health Care Act (AHCA)—to repeal and replace the Affordable Care Act (ACA) through the budget reconciliation process. To address concerns raised by both Democrats and fellow Republicans, the House Republican leadership released amendments to the bills on March 20, 2017.If enacted, the new law would not repeal the ACA entirely, although it would make significant changes to key provisions.
The ACA’s employer and individual mandates would be repealed retroactively beginning in 2016. Key consumer protections, like the ACA’s prohibition on pre-existing condition exclusions and dependent coverage to age 26, would remain intact.
ACA Provisions Not Impacted
The majority of the ACA is not affected by the new legislation. For example, the following key ACA provisions would remain in place:
- Cost-sharing limits on essential health benefits (EHBs) for non-grandfathered plans
- Prohibition on lifetime and annual limits for EHBs
- Requirements to cover pre-existing conditions
- Coverage for dependents up to age 26
- Guaranteed availability and renewability of coverage
- Nondiscrimination rules
- Prohibition on health status underwriting
Repealing ACA Mandates
- The AHCA would reduce the penalties imposed under the ACA’s employer and individual mandate provisions to zero, effectively repealing both mandates (although they technically would still exist). These changes would apply retroactively for months beginning after Dec. 31, 2015.
However, the AHCA would impose what it calls a “continuous coverage incentive.” Issuers would be permitted to add a 30 percent late-enrollment surcharge to the premium cost for any applicants that had a lapse in coverage for greater than 63 days during the previous 12 months
- Replacing ACA Subsidies with Tax CreditsEffective 2020, the AHCA would replace the current ACA subsidies with a portable, monthly tax credit to all individuals that can be used to purchase individual health insurance coverage. The tax credit could be used to purchase any state-approved major medical health insurance and unsubsidized Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage.
The new tax credit would be both advanceable and refundable, and would be age-rated, with older individuals eligible for larger credits. The new tax credits would be capped at $14,000 per family and would be adjusted for inflation over time. In addition, the credits would be phased out for individuals making over $75,000 per year ($150,000 for joint filers).
The AHCA would also repeal the ACA’s small business tax credit beginning in 2020. In addition, between 2018 and 2020, the small business tax credit generally would not be available with respect to a qualified health plan that provides coverage relating to elective abortions.
Enhancements to Health Savings Accounts (HSAs)
HSAs are tax-advantaged savings accounts that are tied to a high deductible health plan (HDHP), which can be used to pay for certain medical expenses. To incentivize use of HSAs, the AHCA would do the following:
- Increase the maximum HSA contribution limit.
- Allow both spouses to make catch-up contributions to the same HSA.
- Address expenses incurred prior to establishment of an HSA.
- Relief from ACA Tax Changes
- The AHCA would provide relief from many of the ACA’s tax provisions, including the following items:
- Cadillac tax, further delayed
- Restrictions on using HSAs for over-the-counter (OTC) medications
- Increased tax on withdrawals from HSAs
- Health flexible spending account (FSA) limit
- Additional Medicare tax
- Deduction limitation for Medicare Part D subsidy
- Beginning after Dec. 31, 2016, the new law would also repeal the following provisions:
- The excise tax on the sale of certain medical devices
- The annual health insurance providers fee
- The annual fee on certain brand pharmaceutical manufacturers
- The 10 percent sales tax on indoor tanning services (repeal effective June 30, 2017)
- It would also reduce the medical expense deduction income threshold to 5.8 percent (lower than the pre-ACA level of 7.5 percent), beginning in 2017.
- Modernizing Medicaid
- The AHCA would repeal the ACA’s Medicaid expansion, and make other changes aimed at modernizing the Medicaid program. For example, the new law would provide enhanced federal payments to states that already expanded their Medicaid programs, and then transition Medicaid’s financing to a “per capita allotment” model starting in 2020, where per-enrollee limits would be imposed on federal payments to states
- The legislation would also modernize Medicaid’s data and reporting systems, repeal the ACA’s disproportionate share hospital (DSH) cuts and make changes to the process for eligibility determinations.
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