On March 6, 2017, Republican leadership in the U.S. House of Representatives issued two bills to repeal and replace the Affordable Care Act (ACA) through the budget reconciliation process. These bills, which were issued by the Ways and Means Committee and the Energy and Commerce Committee, are collectively known as the American Health Care Act.
To become law, these bills must go through the legislative process, although a budget reconciliation bill can be passed with a simple majority vote. Debate on the legislation began on March 8, 2017.
Affordable Care Act Replacement Bill Impact on Employers
If enacted, the new law would not repeal the ACA entirely, although it would make significant changes to key provisions.
The ACA’s employer and individual mandates would be repealed retroactively beginning in 2016. Key consumer protections, like the ACA’s prohibition on pre-existing condition exclusions and dependent coverage to age 26, would remain intact.
See below for a summary of the bills’ important provisions.
ACA Provisions Not Impacted
The majority of the ACA is not affected by the new legislation. For example, the following key ACA provisions would remain in place:
- Cost-sharing limits on essential health benefits (EHBs) for non-grandfathered plans (currently $7,150 for self-only coverage and $14,300 for family coverage)
- Prohibition on lifetime and annual limits for EHBs
- Requirements to cover pre-existing conditions
- Coverage for adult children up to age 26
- Guaranteed availability and renewability of coverage
- Nondiscrimination rules (on the basis of race, nationality, disability, age or sex)
- Prohibition on health status underwriting
The requirement to offer the EHB package for individual and small group plans also remains in place, although the actuarial value requirement would be repealed. Age rating restrictions would also continue to apply, with the age ratio limit being revised to 5:1 (instead of 3:1), and states would be allowed to set their own limits.
Repealing the Employer and Individual Mandates
The ACA imposes both an employer and individual mandate. The American Health Care Act would reduce the penalties imposed under these provisions to zero, effectively repealing both mandates (although they would technically still exist). These changes would apply retroactively for months beginning after Dec. 31, 2015.
However, the American Health Care Act would impose what it calls a “continuous coverage incentive” in an effort to limit adverse selection in health care markets and to encourage individuals to maintain health coverage. Beginning with open enrollment for 2019, issuers would be permitted to add a 30 percent late-enrollment surcharge to the premium cost for any applicants that had a lapse in coverage for greater than 63 days during the previous 12 months. The late-enrollment surcharge would be discontinued after 12 months.
Replacing Health Insurance Subsidies with Tax Credits
The ACA currently offers federal subsidies in the form of premium tax credits and cost-sharing reductions to certain low-income individuals who purchase coverage through the Exchanges. The American Health Care Act would repeal both of these subsidies, effective in 2020.
The American Health Care Act would replace the current ACA subsidies with a portable, monthly tax credit to all individuals that can be used to purchase individual health insurance coverage. The tax credit could be used to purchase any state-approved major medical health insurance and unsubsidized COBRA coverage.
The new tax credit would be both advanceable and refundable, and would be age-rated, with older individuals eligible for larger credits. The new tax credits would be capped at $14,000 per family and would be adjusted for inflation over time. In addition, the credits would be phased out for individuals making over $75,000 per year ($150,000 for joint filers).
The American Health Care Act would also repeal the ACA’s small business tax credit beginning in 2020. In addition, between 2018 and 2020, the small business tax credit generally would not be available with respect to a qualified health plan that provides coverage relating to elective abortions.
Enhancements to Health Savings Accounts (HSAs)
HSAs are tax-advantaged savings accounts that are tied to a high deductible health plan (HDHP), which can be used to pay for certain medical expenses. To incentivize use of HSAs, the American Health Care Act would:
- Increase the maximum HSA contribution limit: The HSA contribution limit for 2017 is $3,400 for self-only coverage and $6,750 for family coverage. Beginning in 2018, the new law would allow HSA contributions up to the maximum out-of-pocket limits allowed by law (at least $6,550 for self-only coverage and $13,100 for family coverage).
- Allow both spouses to make catch-up contributions to the same HSA: The new law would allow both spouses of a married couple to make catch-up contributions to one HSA, beginning in 2018, if both spouses are eligible for catch-up contributions and either has family coverage.
- Address expenses incurred prior to establishment of HSA: Starting in 2018, if an HSA is established within 60 days after an individual’s HDHP coverage begins, the HSA funds could be used to pay for expenses incurred starting on the date the HDHP coverage began.