Rules requiring individuals to buy — and employers to offer — health insurance would be eliminated as part of the American Health Care Act, a bill introduced this week by House Republicans as a replacement for the landmark Affordable Care Act (ACA).
The bill, which requires House and Senate approval, is the first step in repealing the ACA.
Key provisions of the bill include:
1. Elimination of mandates. The ACA’s individual mandate and employer mandate would be immediately repealed.
2. Repeal of ACA taxes, beginning in 2018. The taxes include the 3.8% net investment income surtax, 0.9% additional Medicare payroll tax, and 2.3% medical device excise tax on manufacturers.
3. Delay of Cadillac tax on high-benefit health plans. This tax would be delayed to 2025 from 2020.
4. Modification and eventual phase-out of health exchange premium tax credits. Federal subsidies for the purchase of qualified health plans would be eliminated beginning in 2020. In the meantime, the subsidies can be applied to purchase health insurance coverage outside of the exchange program and can include coverage such as certain catastrophic plans that are not considered “qualified health plans” under current law. For the next two years, ACA premium tax credits would be adjusted, resulting in an increase for younger adults and a decrease for older adults.
5. Introduction of new tax credits to offset insurance cost, beginning in 2020. These credits are designed to replace the current system of premium subsidies. Tax credits will be advanceable (paid when premium is due) and refundable, and states will oversee which insurance programs are qualified.
6. Significant expansion of health-related savings accounts (HSA). HSA contribution limits would increase to the amount of the deductible and out-of-pocket maximum for the plan (projecting at least a maximum of $6,550 for individual coverage and $13,100 for family coverage in 2018, not including catch-up contributions, nearly doubling the current limit.)
Health-care Flexible Spending Accounts (FSA) and HSAs can be used to cover over-the-counter expenses beginning in 2018. Health-care FSA contribution limits (currently $2,500) would be relaxed beginning in 2017 (employers may allow a higher salary deduction into FSAs).
7. Significant changes to Medicaid. Federal funding of Medicaid to states will transition to a per-capita method by 2020. Currently, federal funding is essentially open-ended, with percentage matching formulas based on state spending. Under the proposed change, the federal government would set a limit on how much to reimburse states per enrollee. States will generally have more flexibility to design their Medicaid programs.
Key ACA provisions that will likely be retained:
- No denial of coverage for pre-existing conditions
- Cap on out-of-pocket expenses
- Cover family members up to age 26
- Prohibit annual or lifetime benefit limits
There are obstacles to the proposal already being voiced by members in Congress. To move forward, the legislation will likely be modified. For example, the Congressional Budget Office has not completed a cost projection of the legislation. Also, some elements of the bill will need to be addressed outside of the budget reconciliation process, which would require 60 votes in the Senate to avoid filibuster.
Advisors will likely monitor the bill as it moves through the process for changes in taxes that may impact an investor’s financial plan as well as rules for small-business owners offering health insurance to employees. For more details on the legislation under review, read the summaries in the House Ways and Means Committee, and the House Energy and Commerce Committee.