On March 6, 2017, the U.S. House of Representatives issued two bills, referred to together as the American Health Care Act, to repeal and replace the Affordable Care Act (ACA). If enacted, the American Health Care Act would not repeal the ACA in its entirety, but it would affect several key provisions impacting employers such as the employer mandate and the tax on high cost health coverage (i.e. the “Cadillac” tax). The American Health Care Act would also provide employers with greater flexibility in designing benefit plans by significantly enhancing Health Savings Accounts (HSAs) and eliminating the restrictions on Health Flexible Spending Accounts (Health FSAs).
The key “employer” provisions of the American Health Care Act include:
Eliminating the Employer Mandate Penalties. Under the ACA, large employers (employers with 50 or more full-time employees including full-time equivalents) must offer affordable, minimum value health care coverage or pay a penalty under Section 4980H of the Internal Revenue Code. The American Health Care Act would reduce the penalties under Section 4980H to zero retroactively for months beginning after December 31, 2015, effectively eliminating the employer mandate under the ACA.
Delaying the “Cadillac” Tax. The ACA imposes a 40% excise tax, referred to as the “Cadillac” tax, on high cost employer-sponsored health coverage. The American Health Care Act would delay the effective date of the Cadillac tax for another five years, until January 1, 2025.
Enhancements to Health Savings Accounts. Health Savings Accounts (HSAs) are tax-advantaged, individual accounts tied to high deductible health plans (HDHPs) that can be used to pay qualified medical expenses. To encourage use of HSAs and in turn make HDHPs a more attractive option, the American Health Care Act would:
- Increase the maximum contribution beginning in 2018 to match the maximum out-of-pocket limits allowed by law;
- Allow both spouses to make catch-up contributions to the same HSA if either spouse has family HDHP coverage;
- Allow payment of expenses incurred prior to the establishment of the HSA if the HSA is established within 60 days after the individual’s HDHP coverage begins;
- Allow HSAs to be used to purchase over-the-counter medications; and
- Lower the penalty if HSA funds are not used to pay qualified medical expenses
Eliminate Health Flexible Spending Account (Health FSA) Limits. The ACA limits the amount an individual may contribute to a Health FSA ($2,600 for the 2017 taxable year). The American Health Care Act would repeal the limitation, effective January 1, 2018.
Retain Individual/Employee Protections. Similar to other proposals to repeal and replace the ACA, the American Health Care Act retains many of the individual protections including:
- Cost-sharing limits on essential health
- Prohibition on lifetime and annual limits for essential health benefits
- Requirements to cover pre-existing conditions
- Coverage for adult children up to age 26
To become law, the American Health Care Act must go through the legislative process. However, bills issued through the budget reconciliation process (such as the American Care Act) can be passed with a simple majority vote. Debate on the American Health Care Act began on March 8, 2017. We will continue to monitor the American Health Care Act and report any developments.
If you have any questions, please feel free to contact your Employee Benefits Advisor for more information.