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The GOP Repeal and Replace Bill

Many employers are breathing a little sigh of relief as a leaked provision, the employer exclusion, is absent from the newest budget reconciliation bill launched late yesterday by House leadership.

Employers will continue to enjoy full tax deductibility of premiums for employer sponsored health plans. It’s important to note that the bill is not a full repeal and replace. The bill is a special budget reconciliation bill that carries a more favorable voting process in the Senate, i.e. a simple majority to pass – 51 votes – rather than the 60 votes needed to pass under regular order. The trade-off, though, is that it may only include items that effect the federal budget, e.g. revenue, spending, or the debt limit.

As a result, the bill includes repeal and replace of certain taxes and penalties but doesn’t address other areas centering around insurance plans and their provisions. For example, while it repeals the penalties for both the individual and employer mandates, it does not actually repeal the mandate itself. These will be items that will be addressed through regulatory actions or other legislation. Another item of note is that most provisions, other than the repeal of the mandate penalties, won’t be effective until 2018, 2019, or 2020.

These are the most important provisions employers and individuals should be concerned with:

Provisions Impacting Employers

  • Repeals Individual and Employer Mandates.

    • Penalties connected with the Individual and Employer responsibility provisions are eliminated retroactively for years beginning with 2016.
    • In its place is a continuous coverage requirement. To avoid a 30 percent premium surcharge, individuals must prove that they did not have a gap in creditable coverage of at least 63 continuous days during the 12 months preceding coverage.
  • Repeals Actuarial Value Requirements.

    • Employers can offer “catastrophic coverage” plans that don’t meet the 60% actuarial value requirement after 12/31/2019.
    • States may permit 5 to 1 age rate ratios for small employers plans. This makes coverage more affordable for employers with younger demographics and less affordable for employers with older workers after January 1, 2018.
  • Delays the Cadillac Tax until 2025.

    Unfortunately the challenge to repeal the Cadillac Tax, continues. The legislation delays the Cadillac Tax from 2020 to 2025. Most predictions indicate that a significant number of group health plans would trigger the 40 percent excise tax by 2025 if there aren't any adjustments made to the threshold. The current Cadillac Tax threshold is $10,200 for an individual plan and $27,500 for families.

  • Employer ACA Reporting Requirements (1094/1095C)

    This employer obligation is expected to continue as Individual tax credits, noted below, will be based on whether an employer made an offer of coverage. There is expectation that the reporting will be streamlined or simplified through regulatory procedures.

Provisions Impacting Individuals

  • Repeals Individual and Employer Mandates.
  • Liberalization of HSA rules in 2018 allowing among other things, pre-tax contributions up to the plan out-of-pocket maximum.
  • Puts income limits on eligibility for new tax credits that help people pay for coverage.
  • Delays repeal of many of the ACA's tax increases until 2018, a year later than previous versions.
  • Creates new tax credits reduced for individuals with incomes above $75,000 and households earning more than $150,000. The tax credits would disappear completely for individuals making more than $215,000, with a $290,000 cap for joint filers.
  • Phases out the ACA's Medicaid expansion. Instead of the current open-ended federal entitlement, states would get capped payments based on Medicaid enrollment. But the latest version tweaks the inflation calculator to slow spending growth in future years.

The legislation does not repeal the ACA’s insurance reforms, such as the ACA’s requirements that health plans:

  • Cover preexisting conditions;
  • Guarantee availability and renewability of coverage;
  • Cover adult children up to age 26; and
  • Cap out-of-pocket expenditures,

and the ACA’s prohibitions against:

  • Health status underwriting.
  • Lifetime and annual limits.

The bill will now go to the House Energy and Commerce Committee and the House Ways and Means Committee tomorrow for mark-up. Once that’s complete, it will go to the House Budget Committee and from there to the House floor for a vote. The target date is the week of March 20. If passed as is, it will move on to the Senate where it will go for mark-up with the Senate’s Finance and Health, Education, Labor, and Pensions (HELP) Committees and then on to a vote. Passing in both Chambers and sending to the President for signature by Easter will be an aggressive timeline.

Further complicating matters for the bill is an up swell of significant opposition from conservative legislators like Representative Mark Sanford who co-authored a more conservative repeal and replace bill with Senator Rand Paul. House leaders however, insist they have the needed votes.

In the interim, individuals and employers should hold tight, continue to comply with the current law and stay tuned as events unfold.