ACA repeal and replace: What's in the GOP's plan?

Two committees of the House of Representatives -- Ways and Means and Energy and Commerce -- have released proposed legislation entitled the American Health Care Act (AHCA) that would replace key provisions of the Affordable Care Act (ACA). The Committees are expected to begin markups on March 8. The Congressional Budget Office has not yet issued a full estimate of the revenue cost or an estimate of the number of individuals who would be covered under the AHCA. It is expected that the Congressional Budget Office will complete the revenue and coverage estimates shortly.

Here Ernst &Young LLP's ACA professionals summarize the taxes and fees that would be terminated under the AHCA and important coverage and insurance marketplace stabilization provisions that would be changed under the AHCA.

  The AHCA would not repeal the employer reporting requirements but they are expected to be phased out in the future.  

Taxes and fees repealed

1. Individual and employer mandate are repealed retroactively

Section 5000A, the individual shared responsibility tax (also known as the “individual mandate”), and Section 4980H, the employer shared responsibility tax (also known as the “employer mandate”), would be reduced to zero effective retroactively to 2016. If this legislation were to be enacted with a retroactive effective date, individuals who paid the 2016 individual mandate penalty would be able to amend their 2016 tax returns to request a refund of the penalty payment. The retroactive effective date may be of less practical import for large employers because Section 4980H is an assessable excise tax and the IRS has not yet assessed the tax against any employer.  

In addition to the potential excise tax repeal, employers and insurers are focused on the individual mandate and employer mandate provisions because these ACA provisions were the central reason that the IRS required employers and insurers to provide detailed reporting; the data reported was needed for the IRS to enforce both Section 4980H and Section 5000A. Large employers were required to report on Forms 1095-C and 1094-C and insurers were required to report on Forms 1095-B and 1094-B. 

2.  Employer reporting is not repealed immediately

Notably, the AHCA would not repeal these [employer] reporting requirements but they are expected to be phased out in the future. Under the AHCA, employers would continue to have the obligation to transmit statements to employees and file with the IRS reports regarding an offer and enrollment in coverage and insurers would continue to have the obligation to report on enrollment in coverage. Existing reporting likely would continue to apply through 2019 to assist the IRS in its administration and enforcement of the ACA premium tax credits, which will continue in place through 2019 (see discussion of the premium tax credits later). 

 However, after 2019, both the ACA individual and employer mandates and the premium tax credits would be terminated. The House Way and Means Committee summary of the AHCA states that it would expect the Secretary of the Treasury to stop enforcement of the reporting requirements. (Note, however, that employers and insurers will have new and different reporting requirements under the AHCA amendments as discussed below.) Currently, Sections 5000A and 4980H are the law and employers and insurers continue to have a legal obligation to satisfy the reporting requirements. 

 3. Cadillac tax is delayed and no tax is imposed on employer-provided coverage 

The so-called “Cadillac” tax under Section 4980I would not be completely repealed but would be essentially delayed under the AHCA. Section 4980I imposes an excise tax on high cost health plans (commonly referred to as the Cadillac tax) that under the ACA was scheduled to go into effect in 2020. The AHCA would eliminate the Cadillac tax for the years 2020 – 2024; however, it would be reinstated for tax periods after December 31, 2024.  

The so-called “Cadillac” tax would not be completely repealed but would be essentially delayed.

Some tax policy and health care professionals had expected that any ACA replacement legislation would repeal the Cadillac tax and fund the health care replacement provisions with a cap on the tax exclusion for employer-provided health care coverage. Interestingly, the AHCA proposed legislation does not include a provision capping the employer-provided health care exclusion. Instead, the AHCA would retain the Cadillac tax effective beginning in 2025.

4. Taxes and fees repealed  

 The following chart lists the other taxes and fees that would be repealed by the proposed legislation:  

Access to coverage

• Premium tax credits. Current-law ACA premium tax credits for individuals under Section 36B would stay in place through 2019 with some modifications discussed below. Beginning in 2020, the AHCA would provide that eligible individuals could purchase individual market health care coverage with a new advance and refundable premium tax credit set forth in Section 36C. The tax credit could be used to purchase either individual market health care coverage (i.e., not employer coverage) or any unsubsidized COBRA coverage from a former employer. The tax credit would be age-based starting at an annual credit of $2000 for individuals under age 30 to $4000 for individuals over age 60.  The credit would be additive for individuals in a family (capped at $14,000) and phased out for individuals with incomes above $75,000 ($150,000 joint filers). To be eligible for the tax credit, the individual may not be eligible for employer-sponsored health care coverage or government coverage such as Medicare or Medicaid.

The proposed legislation would require employers to report on an employee’s Forms W-2 for each month of the year whether the employee has an offer of eligible employer-sponsored coverage.

The income-based premium tax credits available under current-law Section 36B would be repealed beginning in 2020. For 2018 and 2019, the ACA premium tax credits would be modified to be available to individuals based on a combination of age and income level. In addition, the modified tax credit would be available during these years to purchase catastrophic coverage and coverage on the off-Exchange individual market. The modified tax credits may not be applied for the purchase of any coverage that includes abortions (but does not prohibit the purchase of a separate policy that includes abortions.) In addition, the cost-sharing subsidies paid to insurers that covered low income individuals would be repealed beginning in 2020.

           Implications. It has been reported that Republican members have debated the merits of permitting eligible individuals to purchase health care coverage with a “refundable” credit, which means that the premium subsidy is available to low income individuals who do not pay income tax. This is one of the provisions that is likely to continue to be an issue as the ACHA is debated in the House of Representatives.

New reporting. Under the terms of the AHCA, an individual would be ineligible for the premium tax credit if the individual is “eligible” for employer-sponsored group health coverage or government coverage.  The proposed legislation would require employers to report on an employee’s Forms W-2 for each month of the year whether the employee has an offer of eligible employer-sponsored coverage.  Insurers also would continue to have additional coverage reporting obligations regarding off-Exchange coverage for 2018 and 2019, and under a new Section 6050X for coverage that is eligible for the premium tax credit that would be available beginning in 2020.

The proposed legislation directs Treasury to build off of the existing system to deliver the advance tax credits and to monitor compliance.

•  Prohibition on pre-existing conditions and continuous health care coverage.  The legislation would continue to require insurers to offer coverage to individuals without pre-existing condition exclusions, as currently required under the ACA. However, beginning in 2019, insurers could charge individuals an additional 30% on top of the base premium if the individual had a lapse of coverage for greater than 63 days. 

       Implications. This continuous coverage concept may renew the requirements for coverage reporting that existed prior to the enactment of the ACA for documenting HIPAA creditable coverage. 

•   Essential health benefits.   The AHCA would repeal the “essential health benefits” requirements as of 2020, which is a key component of the ACA. Beginning in 2020, insurers would no longer be required to offer coverage that provides all of the defined “essential health benefits.” For example, under current law, policies are required to offer maternity services and pediatric care.  

          Implications. By eliminating the requirement to offer all of the essential health benefits, the cost of certain policies may be reduced.  However, the cost of other coverage, such as maternity care, must increase.

• Enhanced Health Savings Accounts (HSAs). The proposed legislation would increase the limit for HSA contributions beginning in 2018 to $6,550 for self-only coverage and $13,100 for family coverage. This amount would be increased based on the existing cost of living index. In addition, the legislation includes a provision to roll-over excess tax credits to an HSA.

The proposed legislation would increase the limit for HSA contributions beginning in 2018 to $6,550 for self-only coverage and $13,100 for family coverage. 

• Medicaid expansion. The proposed legislation would permit Medicaid expansion to continue to 2020. States that did not expand Medicaid would have access to additional funding.  Beginning in 2020, Medicaid funding would move to a per capita funding model.

Market stabilization

The proposed legislation adopts a number of provisions designed to stabilize the insurance marketplace.   Many of the access to coverage provisions are also designed to stabilize the marketplace. 

 The AHCA includes the following provisions that may assist to stabilize the marketplace:

•  Continues cost sharing subsidy through 2020. However, the proposed legislation does not appropriate funds for the cost sharing subsidy. The House Republicans had filed suit claiming that the ACA cost sharing subsidy was not properly appropriated. That lawsuit currently is held in abeyance and the next filing date is May 22, 2017.   Insurers will be anxious to resolve the litigation and ensure that this funding is appropriated.
• Provides for age based underwriting that would permit insurers to apply a five to one rate differential, as opposed to the three to one rate differential in the ACA.

• Repeals the “essential health benefits package” actuarial value requirements as of 2020. Beginning in 2020, insurers would no longer be required to established plans or policies based on the metal tiers: bronze, silver, gold, and platinum. The repeal of this provision is designed to provide insurers with benefit design flexibility. The Secretary of the Department of Health and Human Services has the authority under the ACA to define through administrative guidance what is included in the essential health benefit package within the parameters of the law.

• Provides States with funding that could be used to fund high-risk pools or for other purposes to stabilize the marketplace.

 Ernst & Young LLP observations

The AHCA is the House Republicans’ initial legislative proposal to “repeal and replace” the ACA. Significant debate likely will continue with respect to a number of these provisions particularly as the legislation moves to the Senate. 

Acknowledgement is made to Catherine L Creech and Helen H. Morrison of Ernst & Young LLP for their authorship of this analysis.  

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Debera J. Salam, CPP is author of the Year-End Compliance Handbook and Principles of Payroll Administration, published by Thomson Reuters. For ordering information call Thomson Reuters at 1 800 950 1216 or order via the internet here.