Repeal and Replace: What Stays, What Goes, and What Sticks?

The Congressional Republican leadership has released its ACA repeal and replace bills in the House. As widely anticipated, the two bills currently in the House Ways and Means and the Energy and Commerce committees are broadly patterned on Speaker Paul Ryan’s “A Better Way” blueprint. Lacking a 60-vote super majority that is safe from Democratic filibusters, the GOP will rely on the reconciliation strategy to repeal ACA items affecting the federal budget, while leaving the popular insurance reforms untouched. Opposition from Democrats, coupled with internal divisions within wings of the Republican Party creates uncertainty regarding the ultimate success of repeal and replace. Any bill that ultimately passes will be shaped by the need to find at least 50 votes to pass it.

What Stays?

ACA items that do not have an impact on the federal budget may not be repealed via reconciliation. This includes ACA insurance reforms including:

·        Elimination of Pre-Existing Conditions

·        Ban on Rescissions

·        Guaranteed Issue

·        Guaranteed Renewal

·        Coverage to Age 26

·        Cap on Out of Pocket Expenditures

·        Ban on Health Status Underwriting

·        Ban on Lifetime and Annual Dollar Limits

What Goes?

The following ACA provisions are being eliminated using the budget reconciliation method:

·        The Employer Mandate, with penalties reduced to zero for failure to provide minimum essential coverage. Retroactive relief is provided to businesses affected by the penalty in 2016. Unfortunately, employer 1094/1095-C reporting cannot be repealed via the reconciliation process.

·        The Individual Mandate, replaced with a financial penalty that adds a 30% surcharge for 12-months to the insurance premiums of persons who have a gap in coverage of at least 63 continuous days. Retroactive relief is provided to individuals affected by the penalty in 2016.

·        Cadillac Tax, delayed until at least 2025. Could not be fully repealed under reconciliation due to a Senate prohibition on provisions that increase out-year deficits.

·        Income-Based Premium Tax Credits, replaced with age-based, advanceable, refundable tax credits. Persons overpaid under the old income-based advanced premium tax credits will be pursued for recovery, regardless of income level. Individuals only qualify for the new age-based tax credit if they are:

• covered by state-approved individual health insurance that does not cover non-excepted abortions (not including excepted benefits coverage such as indemnity policies, or grandfathered or grandmothered coverage, but possibly short-term coverage) or unsubsidized COBRA coverage;
• not eligible for employer coverage (regardless of its adequacy or affordability) or government programs (the leaked draft required ineligibility for health care sharing ministries, but the final bills do not refer to them);
• citizens or nationals of the United States or qualified aliens; and
• not incarcerated other than pending disposition of charges.

Actuarial Value and Metal Level Requirements are repealed after 2019. Plans can be sold with AV levels of less than 60%. States are also allowed to permit age ratios of 5 to 1, rather than the current 3 to 1 ratio. I'm personally interested if these two items can be addressed via reconciliation. The 5 to 1 ratio change, coupled with the new tax credit process could mean significantly more expensive premiums for older, lower income Americans.

·        Flexible Spending Account contribution limitations, currently $2600.

·        Over-the-Counter Medication limitations that prevented FSA and HSA plans from being used to purchase OTC medications.

·        Various ACA Taxes will be repealed in 2018, including the Medicare Surtax, Medical Device Tax, Health Insurer Tax, Pharma Tax, and the Tanning Tax.

·        Federal Operation of MarketPlaces, to be replaced with a Patient and State Stability Fund for Reinsurance that will be funded from 2018 to 2026 to encourage the re-establishment of state risk pools like the former Health Insurance Risk Sharing Plan (HIRSP) in Wisconsin.

·        Medicaid Expansion, transitioned to a per-capita cap basis by 2020.

What Changes?

The Republican House reconciliation bills contain a number of changes, including:

·        Reduction in the Tax on HSA Distributions that are not used for qualified medical expenses. The ACA increased the percentage of the tax on distributions that are not used for qualified medical expenses to 20%. This section lowers the rate to pre-ACA percentages.

·        HSA Maximum Contributions Limits increased to match the annual out-of-pocket limits, currently $6,550 for individuals and $13,100 for other than single.

·        HSA Catch Up Contributions for both spouses will be permitted to be made into the same HSA beginning in 2018.

·        HSA Funds Used for Expenses Incurred prior to Establishment of HSA for expenses incurred between beginning of HDHP coverage and actually opening the HSA.

What’s Next?

Near-term, the House Ways and Means and Energy and Commerce committees will begin “marking up” the bills, where the committee members will debate, amend, and rewrite the proposed legislation. The Congressional Budget Office (“CBO”) has not released any type of cost analysis yet for this legislation and by all appearances, the committee mark-ups will proceed without CBO analysis. CBO analysis and confirmation that the proposed legislation meets the requirements for utilizing the reconciliation process is necessary and will have to be obtained before the reconciliation process can be finalized. Since Republicans only have 52 votes in the Senate, they cannot afford to lose more than two votes, assuming Vice President Pence will cast the tie-breaking vote. Recently several Republican Senators have expressed their dissatisfaction with the proposed repeal and replace legislation (Conservative Groups Blast ACA Replacement Plan). Additionally, members of the conservative House Freedom Caucus oppose any legislation viewed as an Obamacare fix, rather than a full repeal. The internal Republican divisions paired with almost certain universal Democratic opposition creates uncertainty regarding the ultimate success of the repeal and replace legislation in its current form.

Long-term Republican strategy and actions are likely to be driven by the Republican desire to win 60 seats in 2018 midterm elections and capture a filibuster-proof super majority. In 2018, a total of 33 Senate seats will be in play, 25 of which are held by Democrats or Independents who caucus with the Democrats. By comparison, only 8 Republican seats will be at risk. With seats in play in key battleground Trump carried like WI, PA, WV, IN. Republican strategists have to understand this, but how much would they want to gamble here in the short term?

What Should Employers Do?

Employers must remember that the ACA remains the law of the land until it is not. This process is far from over, especially since regulatory changes under the Administrative Procedures Act can take a significant amount of time. In the near term, employers should continue to comply with the ACA, including current employer reporting obligations. Employers should continue to monitor the situation and remain flexible. A closing word of caution is that employers should refrain from focusing too closely on the ACA at the expense of other compliance obligations, including ERISA and HIPAA, since both the DOL and HHS has continued to increase their enforcement activities.