The House of Representatives has passed a revised version of the American Health Care Act (the “AHCA”) to implement certain changes to the Affordable Care Act (“ACA”). Although the ACHA was intended to “repeal and replace,” it leaves many of the ACA’s provisions intact.
The following is a summary of key changes made to the ACA by the AHCA:
- Employer Mandate: Effective for tax years after December 31, 2015, the AHCA eliminates the ACA’s Employer Shared Responsibility provisions (i.e., the “employer mandate”).
- Individual Mandate: Effective for tax years after December 31, 2015, the AHCA eliminates the ACA’s Individual Shared Responsibility provisions (i.e., the “individual mandate”). As an alternative, the AHCA adds a continuous coverage requirement for individuals that allows insurers, beginning in 2019, to assess a 30% “late-enrollment” surcharge for individuals who experience coverage lapses of at least 63 days.
- HSA Rules: Effective for 2018, the AHCA:
- Increases the annual contribution limit for HSAs to equal the maximum out-of-pocket cost for high deductible health plans (for 2017, $6,550 for self-only coverage and $13,100 for family coverage).
- Authorizes persons over age 55 to make an annual catch-up contribution of $1,000.
- Reduces the excise tax on HSA withdrawals for non-qualified expenses from 20% to 10%.
- Modifies the definition of qualified medical expenses to include over-the-counter medications and expenses incurred within 60 days prior to the HSA’s establishment.
- Health FSA Contribution Limits: Beginning in 2017, the AHCA repeals the ACA’s annual limit on health FSA contributions. Reimbursements of over-the-counter expenses will also be permitted.
- Cadillac Tax: The ACA imposes a 40% tax on high cost employer-sponsored health coverage known as the “Cadillac Tax” and was originally slated to take effect in 2020. The ACHA delays the effective date for the Cadillac Tax until 2026.
- Premium Tax Credits: Beginning in 2020, the AHCA replaces the ACA’s income-based premium tax credits with age-tiered tax credits as follows:
- $2,000 per individual up to age 29
- $2,500 per individual for ages 30-39
- $3,000 per individual for ages 40-49
- $3,500 per individual for ages 50-59
- $4,000 per individual for ages 60 and over.
- The AHCA tax credits are:
- cumulative for a family and capped at $14,000.
- indexed annually (to CPI +1%).
- available in full to those making $75,000 per year ($150,000 joint filers), and phased out by $100 for every $1,000 of income higher than these thresholds.
- ACA Taxes: The AHCA repeals the following ACA taxes starting in 2017:
- The medical device tax (i.e., a 2.3% tax on certain medical devices).
- The net investment income tax (i.e., a 3.8% tax on certain net investment income).
- The tanning tax (i.e., a 10% tax on indoor tanning services).