A draft of a House “repeal and replace” bill has been leaked to the press. Although it’s only a draft, and there is no confirmation that it is authentic, but if it is, the document is the most detailed we have seen to date on Republican plans to replace the ACA. The draft bill largely follows the priorities outlined in the recent white paper issued by House Republicans. It is also very similar to the 2015 ACA repeal legislation passed by Congress and vetoed by President Obama.
It appears that the bill does not repeal the ACA, rather it repeals sections of the ACA, leaving other areas intact including: covering preexisting conditions; not allowing health status in underwriting factors, requiring coverage for adult children up to age 26 and the capping of out-of-pocket limits and removal of lifetime & annual limits. This draft also does not appear to impact ACA’s Medicare cuts and reforms.
Limits on the Tax Exclusion for Employer Sponsored Health Benefits
The draft bill does repeal the Cadillac tax, but the biggest news for employers is the proposal to limit the tax exclusion on employer sponsored health benefits. Republicans have been talking ab out this for a long time as an avenue to pay for proposed tax credits and for the repeal of other fees and taxes contained in the ACA.
As a point of reference, the Congressional Budget Office released an analysis last December that showed the impact of a tax exclusion on the Federal Budget. In one example in the study, the limit on the tax exclusion was set at the 75th percentile of health insurance premiums. In that analysis, the CBO projects that in 2020, the 75th percentile threshold will be $10,800 for individual coverage and $29,100 for family coverage. Based on the CBO estimates, the proposed tax beginning in 2019 and set at the 90th percentile of premiums will apply to annual plan costs above approximately $12,300 for individual and $33,200 for family coverage. The cap would be indexed to increase at the Consumer Price Index plus 2%. We know that historically, health care costs have risen at a rate faster than CPI, so more and more plan would be subject to the tax each year.
The bill proposes, beginning in 2019, the tax exclusion for employer-provided health benefits would be capped at the 90th percentile of average health insurance premiums. Any amount above that limit would be treated as taxable income to the employee.
There are a lot of questions regarding the method that will be used to calculate health insurance premiums, but those questions are not addressed in the bill, rather it instructs the IRS to draft regulation to determine the appropriate costs that will be the basis for the tax.
Applicable Large-Employer “Penalties” Under §4980H Reduced to $0
The draft legislation is designed to be able to pass both the House and Senate using budget reconciliation. This would allow Republicans in the Senate to avoid a Democratic filibuster and pass a bill with a simple 51-vote majority. However, budget reconciliation cannot be used for a full repeal of the §4980H employer shared responsibility rules that require applicable large employer requirements to provide health insurance to full-time employees. So instead, the bill leaves the requirement in place, but eliminates the penalty for violating the rules. There will be much debate about what this exactly means if this approach is what ends up in whatever is eventually passed into law.
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