The American Health Care Act (AHCA) Passed the House
May 04, 2017
The House of Representatives has passed the AHCA, the bill to “repeal and replace” the Affordable Care Act (ACA). The bill must now pass the Senate. It cannot be filibustered by the Senate and needs only a simple majority vote to pass (50 votes plus Vice President Pence as the tiebreaker) because the bill is drafted as part of the budget reconciliation process. The changes that are included in the bill (note that most of these have not changed, other than different effective dates) are:
- Many taxes imposed under the ACA are repealed:
- The 2.3% excise tax on the sale of medical devices (beginning after December 31, 2016)
- The tax on pharmaceutical manufacturers (for tax years beginning after December 31, 2016)
- The annual tax on health insurers (beginning after December 31, 2016)
- The .9% Medicare tax on employees’ wages or self-employment income (beginning in 2023)
- The 3.8% tax on certain net investment income of individuals and estates and trusts (starting in 2017)
- The 10% sales tax on indoor tanning services (beginning after June 30, 2017)
- The Cadillac tax remains, but the effective date is delayed until tax years beginning after December 31, 2025.
- The individual mandate is effectively repealed, with a reduction in the penalty to 0%, effective retroactively to January 1, 2016.
- The employer mandate is effectively repealed, with a reduction in the penalty to 0%, effective retroactively to January 1, 2016.
- Simplified reporting of an employer’s offer of health coverage on Forms W-2 will replace the complicated Form 1095 filings.
- Premium tax credit changes include:
- For tax years 2018 and 2019, individuals who were overpaid premium tax credits must repay the entire excess credits, regardless of income.
- For tax years prior to 2020, premium tax credits will be available to purchase catastrophic health plans and qualified health plans purchased outside the state Exchanges.
- Prior to 2020, the premium tax credit schedule is revised to adjust for household income and the age of the individual or family members.
- The Premium Tax Credit is repealed beginning in 2020.
- The Cost Sharing Subsidy to lower out-of-pocket costs for Exchange coverage is repealed beginning in 2020.
- An advanceable, refundable tax credit is available for the purchase of state-approved, major medical health insurance, based on age; is additive for family members, capped at $14,000 per family; and phases out for income over $75,000 for single filers and $150,000 for joint filers:
- Under age 30: $2,000
- Ages 30 to 39: $2,500
- Ages 40 to 49: $3,000
- Ages 50 to 59: $3,500
- Over age 60: $4,000
- The Small Business Tax Credit for purchasing insurance on a state Exchange is repealed beginning in 2020.
- Health Savings Account changes include:
- Increase in the annual limits on contributions to equal the deductible plus out-of-pocket maximums under the ACA, currently $6,650 for single coverage and $13,100 for family coverage, starting in 2017.
- Both spouses can make catch-up contributions to the same HSA starting in 2018.
- Over-the-counter medications can be reimbursed in HSAs and Flexible Spending Accounts starting in 2018, effective for the 2017 tax year.
- Tax on distributions from HSAs that are not for qualified medical expenses goes back to 10%.
- The $2,500 annual limit on Flexible Spending Accounts is repealed for tax years after December 31, 2016.
- Employers will be allowed to deduct the entire cost of retiree prescription drugs, even if a Medicare Part D subsidy is received, for tax years beginning after December 31, 2016.
- Medical expense threshold for itemized deductions is reduced from 10% to 5.8% to provide financial support for those with high health costs, including low- and middle-income seniors, for taxable years beginning after December 31, 2016.
- The $500,000 compensation limit for employees and directors of insurance companies is repealed starting in 2017.
- Preexisting condition requirement of the ACA is preserved.
- Insurers will be allowed to charge a 30% surcharge if health purchasers do not keep “continuous” coverage throughout the year, beginning with 2019 open enrollment periods.
- Age variation in premiums for older vs. younger individuals is changed from 3 to 1 to 5 to 1, and states are given the flexibility to set their own ratio, beginning in 2018.
- Medicaid expansion is frozen in 2020 and phases out over time.
- One hundred billion dollars in state grants are provided to help states take care of high-risk individuals and to help stabilize the states’ insurance markets.
The bill still does not include the controversial per-employee cap on employer deductions for health insurance.
All attention will now turn to the Senate for the next vote. If you have questions, please contact your Wipfli relationship executive.
Wipfli Editorial Team