Washington Update

House Passes ACA ‘Repeal and Replace’ Bill
Senate to Begin Deliberations Soon

In a first step toward repealing and replacing the Affordable Care Act (ACA), the U.S. House of Representatives has passed the American Health Care Act. The bill will now be sent to the U.S. Senate. Until this legislation is passed by the U.S. Senate and signed into law by President Trump, all existing ACA requirements remain in effect, including penalties for noncompliance.

Notable Provisions of the American Health Care Act
If signed into law, the American Health Care Act would, among other changes, make the following revisions to key features of the ACA over the next three years:

  • "Pay or Play": Penalties for noncompliance with the "pay or play" coverage requirement (which mandates, in general, that employers with 50 or more full-time employees [including full-time equivalent employees] must offer affordable, minimum value coverage to their full-time employees, or pay a penalty tax) are zeroed out. However, the Form 1094 & 1095 reporting requirements are unchanged by the bill.
  • Individual Mandate: Penalties for noncompliance with the individual mandate are zeroed out, effectively repealing the mandate. In its place, the bill requires issuers in the individual or small group markets to impose a 30% penalty on the health insurance premiums of individuals who do not maintain continuous health insurance coverage.
  • HSA Contribution Limits: Limits on contributions to health savings accounts (HSAs) are increased to equal the inflation-adjusted annual out-of-pocket expenses limitation imposed on high deductible health plans (currently $6,550 (self-only coverage)/$13,100 (family coverage)).
  • Health FSA Contribution Limits: Limits on contributions to health flexible spending arrangements (health FSAs) are eliminated.
  • Tax Credits for Individual Coverage: Replaces the ACA's premium tax credits for individual market coverage with advanceable, refundable tax credits adjusted for both age and income.
  • Market Reforms: Permits states to seek waivers from the ACA's essential health benefits and age and health status community rating requirements.
  • Medicaid: Allows states to elect to receive federal Medicaid funding via a block grant or per capita allotment, and alters the ACA’s Medicaid expansion
Read the American Health Care Act in its entirety. 

Tax Reform Update

Comprehensive tax reform. In the nearly two years since Donald Trump announced his candidacy for President, we’ve heard those three words with unflagging consistency. As the first 100 days come to an end, Trump’s announcement on Wednesday, April 26, gave the country an outline of the President’s priorities for tax reform. What might these proposed changes mean for the life insurance, retirement and health care industries?
 
How This Affects Retirement
While most people in the retirement plan industry have focused on the DOL’s Conflict of Interest Rule and its impact on plan sponsors and participants, lurking in the background has been the potential for comprehensive tax reform — which puts retirement deferrals in the crosshairs. Trump’s proposed “simplification” of the tax code promises to preserve tax breaks that incentivize home ownership, retirement savings and charitable giving. However, Secretary Mnuchin, who presented the plan alongside National Economic Council Director Gary Cohn, said that only mortgage and charitable deductions would be included, and the press briefing handout listed only charitable and interest deductions. What’s the real scoop? Historically, retirement deferrals are one of the largest tax expenditures and are always on the chopping block when Washington needs to pay for initiatives. 

How This Affects Health Care
After a shaky start with health care reform, President Trump pivoted to tax reform. While we wait to see if the GOP will introduce another repeal/replace/repair bill with regards to the ACA, it’s important to keep an eye on whether tax reform discussions in the House will include an ACA fix that caps the employee tax exclusion. Both the Cadillac tax and a cap on the employee tax exclusion are viewed as revenue drivers and, thus, financing vehicles for future reform measures. While the most recent attempt at ACA repeal, the American Health Care Act (AHCA), didn’t include a cap (though it was included in an earlier version), it also did not repeal the Cadillac tax. It extended the Cadillac tax’s implementation to 2025 as a placeholder for this discussion. Through our lobbying efforts with CIAB, NAHU and the American Benefits Council (ABC), our message to Congress is, “Don’t disrupt the employer-sponsored market by impacting its tax-favored status in an effort to fix the issues in the individual market.” 

How This Affects Life Insurance
There’s been so much talk about estate tax repeal over the past few months, but what does that really mean? It’s an easy thing for candidates to talk about in abstract terms on the campaign trail, but when it’s time to draft a repeal bill, it becomes a bit more complicated. Should we repeal the estate tax but not the gift tax? What happens to the generation-skipping transfer (GST) tax? If we leave the gift tax, what’s the tax rate? Is there an exemption amount? If we repeal the estate tax, what happens to the basis step-up provision? 

As always, we’ll continue to monitor developments and provide updates as we move forward. 

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House Cancels Vote on Republican ACA Replacement Plan

On Friday, March 24, 2017, the U.S. House of Representatives canceled a vote on the proposed Affordable Care Act (ACA) replacement plan, called the American Health Care Act (AHCA). According to House leadership, the Republicans didn't have enough votes to pass the House, and so House Speaker Paul Ryan (R-WI), after discussing with President Trump, canceled the vote. Following the cancellation, both Ryan and Trump stated that the ACA repeal and replace efforts will be on the back burner for now, as Congress will move forward with other initiatives, including tax reform.

The AHCA Plan
The AHCA would have repealed penalties associated with the ACA's individual and employer mandates, repealed the health insurance tax on insurers and the health FSA contribution employee contribution limits, and allowed reimbursements from HSAs, FSAs and HRAs for over-the-counter (non-prescription) medication. For HSAs, it would have increased contribution limits and loosened reimbursement rules. Lastly, the AHCA would have delayed the Cadillac tax until 2025 and created new refundable tax credits (based on age) as a replacement for the ACA's premium tax credit system.

The AHCA faced an uphill battle from its introduction, as Republican factions were never fully on board. Specifically, the House Freedom Caucus, a conservative group within the House led by Rep. Mark Meadows (R-NC), wanted the AHCA to include a wider repeal of the ACA, including repeal of the ACA's prohibition on lifetime and annual limits, and essential health benefits requirements. Ultimately, despite their determination, House leadership could not both appease the Freedom Caucus and maintain support from other, more moderate House Republicans.

Looking Ahead
Looking forward, it's unclear how Congressional Republicans and President Trump will proceed with their ACA repeal and replace efforts. Rep. Ryan stated that the ACA is the "law of the land" for the foreseeable future, and Trump said he'll let the ACA "explode." Both hinted at revisiting the issue later down the road, though. But those comments, coupled with Trump's inauguration day executive order on ACA non-enforcement, leave uncertainty around the future of the ACA and any repeal-and-replace efforts. That leaves us with several possibilities to consider:

  • Possibility #1: The ACA remains the law, but the Trump administration doesn't enforce penalties associated with the individual and employer mandates, taxes and other ACA requirements. The administration would also likely continue expanding hardship exemptions from the individual mandate and encourage states to apply for innovation waivers (a recent CMS memo also encourages this).
  • Possibility #2: The ACA remains the law, but Trump decides to let the ACA proceed with enforcement and penalties, so as to allow ACA's progression (and in his words, to allow it to "explode").
  • Possibility #3: Ryan and Trump continue working behind the scenes to garner additional support, either amongst Republicans or across the aisle with Democrats. Although Ryan and Trump have publicly stated they won't spend more time in the near future on ACA repeal and replacement, they could incorporate at least some portions of repeal and replace into their comprehensive tax reform efforts.

 For employers, the vote cancellation means the status quo remains - the ACA is the law of the land, so employers should plan to continue their compliance efforts. Among other things, this means continued compliance with the employer mandate and the associated reporting. Employers should continue those efforts through tracking of hours, including any measurement periods used for variable hour or seasonal workforces. Employers should also plan to comply with other ACA requirements, including PCOR and reinsurance fee payments, covering preventive services at zero cost-sharing, covering dependents to age 26 and observing pre-existing condition exclusion prohibitions.

As always, we'll continue to monitor developments and provide updates as we move forward.