Wipfli Alerts & Updates: ObamaCare Replacement Bill Eliminates Taxes and Replaces Mandates With Incentives


March 7, 2017
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The House Ways and Means Committee and Energy and Commerce Committee released the American Health Care Act last night to repeal and replace or modify many provisions of the Affordable Care Act (ACA).  The two committees’ bill will be marked up by Ways and Means on March 8 and is scheduled to go to the Budget Committee by next week. The changes proposed in the bill include:

  • Most taxes imposed under the ACA are repealed, effective after December 31, 2017, including:

    • The 3.8% tax on certain net investment income of individuals and estates and trusts

    • The .9% Medicare tax on employees’ wages or self-employment income

    • The 10% sales tax on indoor tanning services

    • The annual fee on health insurers

    • The 2.3% excise tax on the sale of medical devices

    • The annual fee on certain brand pharmaceutical manufacturers

  • The Cadillac tax remains, but the effective date is delayed until 2025.

  • The individual mandate is effectively repealed, with a reduction in the penalty to 0%, effective retroactively to January 1, 2016.

  • The employer mandate is effectively repealed, with a reduction in the penalty to 0%, effective retroactively to January 1, 2016.

  • Simplified reporting of employers’ offer of health coverage on Forms W-2 will replace the complicated Form 1095 filings.

  • Premium tax credit changes include:

    • For tax years 2018 and 2019, individuals who were overpaid premium tax credits must repay the entire excess credits, regardless of income.

    • For tax years prior to 2020, premium tax credits will be available to purchase catastrophic health plans and individual health plans purchased outside the state Exchanges.

    • Prior to 2020, the premium tax credit schedule is revised to adjust for household income and the age of the individual or family members.

    • The Premium Tax Credit is repealed beginning in 2020.

    • The Cost Sharing Subsidy to lower out-of-pocket costs for Exchange coverage is repealed beginning in 2020.

  • An advanceable, refundable tax credit will be implemented, starting in 2020, for the purchase of state-approved major medical health insurance and unsubsidized COBRA coverage, based on age, and is additive for family members, capped at $14,000 per family, and phases out for income over $75,000 for single filers and $150,000 for joint filers:

    • Under age 30:  $2,000

    • Ages 30 to 39:  $2,500

    • Ages 40 to 49:  $3,000

    • Ages 50 to 59:  $3,500

    • Over age 60:  $4,000

  • The Small Business Tax Credit for purchasing insurance on a state Exchange is repealed beginning in 2020.

  • Health Savings Account changes, beginning in 2018, include the following:

    • The annual limits on contributions increase to equal the deductible plus out-of-pocket maximums under the ACA, which are currently $6,550 for single coverage and $13,100 for family coverage.

    • Both spouses can make catch-up contributions to the same HSA.

    • Over-the-counter medications can be reimbursed in HSAs and flexible spending accounts starting in 2018 (although the current enabling language may need to be modified to accomplish the intended result).

    • The tax on distributions from HSAs that are not for qualified medical expenses goes back to the 10% rate.

  • The $2,500 annual limit on flexible spending accounts is repealed for tax years after December 31, 2017.

  • Employers will be allowed to deduct the entire cost of retiree prescription drugs even if a Medicare Part D subsidy is received.

  • Medical expense threshold for itemized deductions is reduced from 10% back to the 7.5% rate pre-ACA beginning in 2018 and extends the special rule of 7.5% for those age 65 or older through this year.

  • The $500,000 compensation limit for employees and directors of insurance companies is repealed starting in 2018.

  • The preexisting condition requirement of the ACA is preserved.

  • Insurers will be allowed to charge a 30% surcharge if health purchasers do not keep “continuous” coverage throughout the year.

  • Age variation in premiums for older vs. younger individuals is increased to 5 to 1 (was 3 to 1), and states are given the flexibility to set their own ratio.

  • Medicaid expansion is frozen in 2020 and phases-out over time.

  • One hundred billion dollars in state grants are provided to help states take care of high-risk individuals and to help stabilize the states’ insurance markets.

The bill does not include the controversial per-employee cap on employer deductions for health insurance. This provision would have made providing health insurance to employees more expensive. 

These provisions are subject to change as the bill works its way through the legislative process, and we will provide information as it becomes available. If you have questions, please contact your Wipfli relationship executive.

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