Wednesday, March 29, 2017

ACA Replacement Legislation Withdrawn


On March 24, the American Health Care Act (AHCA), which would have repealed and replaced many provisions of the Affordable Care Act (ACA), was removed from consideration by the Republican leadership in the House of Representatives. It is unclear whether Congress will attempt further changes to the ACA.

Prior to being pulled from consideration, the legislation was amended, including a Manager’s Amendment, which was added on March 20. The amendment would have accelerated the effective dates of several payroll-related provisions. Payroll-related provisions of the AHCA would have included:

•       Eliminated the Employer and Individual Mandates
By eliminating the penalties associated with the employer and individual mandates, the legislation would effectively eliminate the requirements for employers to offer ACA-compliant insurance and for individuals to maintain health care coverage. This provision would be effective for months beginning after December 31, 2015.

•       Revised Employer Reporting
Under the AHCA, employers would still be required to report certain health care information. The AHCA creates a new refundable tax credit for the cost of health care coverage. To track who qualifies for the tax credit, the IRS would need to know when employees were eligible for employer-sponsored insurance. Employers would be required to report, on a monthly basis, whether an employee was eligible for the employer-sponsored group health plan. The bill specifically requires this reporting on Forms W-2 beginning in months after December 31, 2019.

•       Required Insurer Reporting
Under the AHCA, insurers (most likely including self-insured employers) would be required to report the health insurance coverage provided to individuals. If the insurer received an advanced premium health care tax credit on behalf of the individual, the insurer must report the coverage on a monthly basis. Insurers would also be required to furnish a statement to individuals on or before January 31 of the year following the calendar year to which such statement relates.

•       Repealed the Additional Medicare Tax
The provision that would have repealed the 0.9% Additional Medicare Tax on wages in excess of $200,000 ($250,000 for joint returns) underwent several changes. The original proposal would have been effective in 2018. The Manager’s Amendment accelerated the date so that it was retroactive to the beginning of 2017 (with transition relief for employers that had already withheld the tax in 2017). An amendment on March 27 would have delayed the repeal until 2023.

•       Allowed Reimbursement for Over-the-Counter Medication
The ACA excluded over-the-counter medications from the definition of qualified expenses that may be reimbursed through a health savings account (HSA), Archer medical savings account (MSA), a health flexible spending arrangement (FSA), or a health reimbursement arrangement (HRA). The AHCA would repeal that limitation in tax years beginning after December 31, 2016.

•       Eliminated FSA Contribution Limits
Currently, pre-tax health FSA contributions are limited ($2,600 for 2017). The AHCA would repeal the limitation beginning in 2017.

•       Increased HSA Contribution Limits
For 2017, the annual HSA contribution limit is $3,400 ($6,750 for a family). Under the AHCA, the limit would increase to the combined maximum amount of the deductible and out-of-pocket costs permitted under a high deductible health plan ($6,550 for self-only coverage and $13,100 for family coverage in 2017). This provision would be effective beginning in 2018. Also, spouses would be allowed to make catch-up contributions to the same HSA.

•       Reduced Penalties for HSA and MSA Distributions
Distributions from HSAs and MSAs not used for qualified medical expenses are includible in gross income and are generally subject to an additional tax of 20% of the distributed amount. Beginning in 2017, the tax rate would be reduced to 10% of the distributions for nonqualified medical expenses from HSAs and 15% of the distributions for nonqualified medical expenses from MSAs.

•       Delayed the “Cadillac tax”
The AHCA delays the effective date of the ACA’s excise tax on high cost employer-sponsored coverage (also known as the “Cadillac tax”) from 2020 until 2026.

The bill, amendments, and the original version of the bill are available online. Pay News Now will continue to track any proposed changes to the Affordable Care Act and the American Health Care Act.