The American Health Care Act (AHCA)

Abbreviated version:

The American Health Care Act, is the Republican plan to replace the Affordable Care Act. It is now winding its way through the congressional approval process.

President Trump issued an executive order on the very first day he took the oath of office. He directed agencies to ease the regulatory burdens it imposed. However, a President cannot repeal a law passed by Congress, and Congress cannot repeal on its laws without the votes.

The AHCA has released 123 pages of the recommendations relating to the replacement of the Affordable Care Act.

Here are the highlights of their recommendations:

Cadillac Tax Delayed

The Cadillac Tax (high-cost insurance plans) will have an additional five-year delay to 2025. This is fifteen years after the ACA was enacted.

The following $600 billion in other taxes are being repealed:
  • Health insurance tax
  • Medical device tax
  • Net investment tax
  • Medicare wage surtax increase
  • Tanning tax
It redefines Medicaid

The reconciliation bill would make significant changes to the Medicaid program, including the ACA’s Medicaid expansion. It would codify the 2012 Supreme Court decision that expansion is optional for states and would repeal the enhanced federal matching funds by 2020. It would also repeal the Medicaid disproportionate share hospital cuts for non-expansion states in 2018 and for expansion states in 2020. Non-expansion states would be given $10 billion over five years for safety-net funding. Individuals would be required to provide documentation of citizenship or lawful presence before obtaining Medicaid coverage, there would be an increased frequency of eligibility redeterminations, the mandatory income eligibility level for poverty-related children would revert back to 100% of poverty, and lottery winners would be ineligible for Medicaid based on a sliding scale. In a more structural change to the program, state funding would be changed to a per-capita cap model in 2020 based on the fiscal year 2016 spending, which would then be indexed by medical inflation.

It may take away the 10 “Essential Benefits”

The AHCA takes away the requirement that Medicaid cover these benefits Obamacare lays out 10 “essential benefits” that most health insurance policies must cover. They include outpatient care, emergency services, hospitalization, maternity and newborn care, mental health services and addiction treatment, prescription drugs, rehabilitative services, laboratory tests, preventive services (including cancer screenings and vaccines) and pediatric services.

Planned Parenthood

AHCA takes federal funding away from Planned Parenthood and any other health provider that offers abortion, even though federal law already prohibits the use of taxpayer dollars for abortion.

AHCA Cuts Crucial Disease Prevention Fund

The Kaiser Family Foundation estimates the credit averages out to $1,700 less per person.

The AHCA would eliminate the ACA’s individual and employer mandate penalties (although the mandates themselves would remain and compliance would be expected), and instead, insurers would be allowed to increase premiums by 20%-30% for anyone with a 63-day or more lapse in coverage. That penalty would be charged monthly and last for a full year.

It would also reinstate high-risk pools, and fund them with $100 billion over the next ten years ($10 billion per year) in a new “Patient and State Stability Fund” to expand coverage, increase insurance options, promote access to benefits, and reduce out-of-pocket spending. Other market reforms would include a repeal of the ACA’s actuarial value standards and would allow states to implement a 5:1 age-rating band structure instead of the current 3:1 standard.

Health Savings Accounts are expanded:
  • Maximum Contributions tied to Out-of-Pocket Expenses: Higher contributions could result in lower individual taxes and lower employer payroll-related expenses.
  • Allow both spouses over age 55 to contribute to same HSA account: Administrative ease when both spouses are age 55 or over and covered under one family coverage.
  • Special rules for certain medical expenses incurred before the establishment of the HSA: Provides a 60-day window from the effective date to establish the HSA for purposes of determining if an expense incurred is a qualified medical expense.
  • Reduce penalty on early withdrawals from 20% back to 10%: Reduction of early withdrawal penalty.
  • Over the Counter (“OTC”) Reimbursements Allowed: Added OTC reimbursement helps many with day-to-day expenses.
Repeals current FSA annual limitations of $2,550; allows greater contributions to an FSA.
Tax credit proposed for health insurance

The bill includes an advanceable, refundable tax credit to assist those buying health insurance. The credit starts at $2,000 per person, and a family can qualify to receive as much as $14,000. Credits phase out for individuals making more than $75,000 a year, or at $150,000 for couples filing joint tax returns.

The AHCA does retain many of the ACA’s consumer protections, such as:
  • guaranteed issue coverage
  • coverage of pre-existing conditions
  • keeping children on their parents’ policies until age 26.

Congress is scheduled to be in session through April 7, when it will take a two-week recess and reconvene on April 24 and largely remain in session until its August recess. Without any hiccups, the timetable for the reconciliation legislation currently has it being considered on the House floor at the end of March. If passed, the Senate would need to take up the process through each of its committees of jurisdiction before passing it on the chamber’s floor. If there are any differences between the House and Senate versions, they can either have the opposite chamber pass their version as-is, or they can attempt to bridge their difference through a conference committee. This timetable would likely push any legislation well into May, although the goal of Republican leadership is to have the bill through the House and Senate by mid- April.

As a reminder, until any legislation is formally enacted into law, the ACA remains the law of the land and all its mandates, penalties, and enforcement remains in effect and employer groups, and individual consumers should continue to follow all rules and regulations that are currently in place

As you probably know, there have been multiple efforts by Congress to repeal, replace or otherwise change the Affordable Care Act (ACA). As of this writing (August 3, 2017), all of these efforts have failed to pass.

Unless other legislative or agency action is taken, employer responsibilities required by the ACA remain in place. Looking ahead into early next year (for plans subject to the requirements), this may include:

  • Preparation and distribution of the SBC (and Notice of Modifications to the SBC)
  • Disclosure of grandfathered status in all enrollment and plan materials
  • Distribution of the Coverage Options (Exchange) Notice to new hires
  • Payment of fees for the Transitional Reinsurance Program
  • Reporting of health insurance costs on Form W-2
  • Reporting of coverage on Forms 1094 and 1095

Please know that we are staying abreast of all legislative activity and will alert you if there are any changes that impact your compliance responsibilities through our blogs and directly if you are a client.